Income and Home Mortgage Qualification

Two factors affect your income qualification: Amount and Stability.

Income amount determines the size of the home you can buy, while income stability helps you get lower interest rates. It is harder to get a mortgage if the income you earn is not stable, such as sales commissions (real estate agents, car salesmen), or self-employed business ownership.

Income Needed To Qualify for a Home Mortgage

If you put less than 20% downpayment, the amount of your monthly income that can go towards monthly home mortgage payments is restricted to 44%.

If you put more than 20% downpayment, then up to 50% - 60% of your monthly income can go towards monthly mortgage payments.

Those limits are called Total Debt Service ratio or TDS.

Monthly payments that must be covered within the Total Debt Service ratio limit:

• Monthly mortgage payments
• Property taxes
• Heating bills
• Credit card bills
• Car loan bills, student loan bills
• any other bills that require monthly commitments (for example child alimony)

If you put less than 20% downpayment and estimate that your monthly mortgage payments, combined with payments listed above will take more than 44% of your monthly income, you will not qualify for a mortgage. You can apply for a mortgage with lenders who allow going over 44%+ limit, but expect higher interest rates. It is a wise choice to look for a less expensive home or wait until you earn more money.

If you put more than 20% downpayment, there's no need to worry.

Income Verification

Best way to verify your income is to provide verification from employer in writing, supported by official documents.

Income verification differs if you're self-employed, earn commissions or get paid based on company's performance. If you're self employed be prepared to provide tax information. Also consider low documentation mortgage.

Typically brokers and lenders ask for:

• Income Tax Returns (T1 General tax form)
• T4, T4A or commission earnings tax form. View T4 tax forms.
• Notice of Assessment
• Recent pay stubs
• Financial Statements
• Letter of employment. It must come on official company letterhead, dated and signed by appropriate authority. It must contain length of employment, date of hire and position. If you're paid hourly, it must specify hourly rate and number of guaranteed hours per week. If you get salary, it must specify amount received annually. Salary must be broken by type (fixed base, commission or bonus).

Calculate if your income covers all required payments within 44% limit. Estimate how much you'll pay per month with home mortgage calculator.

Types of Eligible and Ineligible Income For a Mortgage

Eligible Income

Calculate your total income by combining income types below:

• Permanent Full Time Employment. Requires 6 months - 2 year minimum employment to qualify for a home mortgage.
• Permanent Part Time Employment. Requires 6 months - 2 year minimum employment to quality.
• Secondary Employment
• Overtime, Commissions, Bonuses, Profit Sharing. 1 - 3 years minimum employment.
• Investment Income. 100% of that income can be used for home mortgage payments.
• Pension. Permanent pension income can be used for mortgage payments.
• Rental Income. Guidelines vary with different mortgage lenders.
• Maternity Leave Payments (pregnancy leave). Requires confirmation letter from employer indicating position at the company, the return date, and salary upon return.
• Child Support and Alimony Payments. Must provide court order papers.
• Disability Income. Must be a permanent disability, otherwise you must provide letter from employer stating eligibility date of returning to work.

Ineligible Income

• Social Assistance
• Employment Insurance (excluding pregnancy leave and seasonal worker payments)
• Predicted income or predicted bonuses

Source: Introduction to Canadian Mortgage Industry: Third Edition by Canadian Institute of Mortgage Brokers and Lenders (CIMBL), including resources written by MortgagesCanada.ca

Mortgage interest rates are subject to change without notice. We attempt to maintain accuracy on our website, however, mortgage information on this website should be used only as a guideline. Please consult a mortgage professional before taking any action.