In most situations lenders require a comfort level that the borrower has sufficient income and cash flow to service the mortgage as well as any other obligations that they may have. The higher the Loan to Value (ie mortgage amount vs. purchase price) the more important this becomes as the lender is placing less reliance on the value and equity in the property and more on the earning power of the borrower. The following is a summary of what Lenders require depending on what type of job you have:
- Job Letter – Lenders use 100% of the income. Verification is made on company letterhead, signed by appropriate individual. If you are a recent hire, the letter should confirm that probation period has been passed. Bonuses, car allowances and other forms of remuneration should be mentioned if applicable.
- Pay Stubs – Many Lenders will also require your most recent pay stubs.
- Pay Stubs – showing year-to-date income verification.
- T4’s and/or Personal Tax Returns (T1 Generals)- 3 years to take an average.
- Notice of Assessment – (NOA) – most recent to confirm no taxes owed.
- T4’s and/or Personal Tax Returns – 3 years to take an average.
- Job Letter – confirming position.
- Notice of Assessment (NOA) – optional depending on Lender.
- Financial Statements of Company – 3 years average of net income used. Depending on Lenders policies, The add-back of various personal expenses run through the company may or may not be allowed (eg’s of allowable add backs – Depreciation, Amortization, CCA (Capital Cost Allowance).
- NOA’s (Personal Notice of Assessments).
- Personal Tax Returns ( T1 Generals showing personal net income).
- Will be used as long as there is a proven track record – 3 years evidence (T-4’s). Bonuses – Once again a 3 yr track record required. Part-time Job – should be in place for a couple of years before using the additional income. Tips – generally not recognized unless declared for tax purposes.
- Car Allowances – This varies from lender to lender. Alimony and Support – Evidence that payments have been made regularly and a copy of divorce agreement is required.
- Investment Income – must be received continuously. This source of income is limited to interest, dividends or some type of ongoing revenue. Capital gains, which result from the liquidation of an asset is a 1 time occurrence and can’t be used.