Overcoming the Challenge of Income Qualifying
When it comes time to get your mortgage, or perhaps look at investing in an investment property, income qualifying is one of the first steps you will have to take. This first step though can also be the most challenging. Let’s walk through the steps you should take:
1. What is your Employment?
Are you employed by a company and receive a consistent paycheck with a T4 slip? OR
Are you self-employed—a sole proprietor, incorporation, or a limited company (same as incorporation)?
If you are employed, you may need the following documents to provide to your broker/lender:
2 most current years T4’s
2 most current Notices of Assessment
Most recent pay stub
Letter of employment
Up to 90 days of bank history to show you have the down payment and closing cost (usually 1.5%)
If you are a proprietorship, you may need the following documents to provide to your broker/lender:
T1 Generals for the most recent last 2 years – all pages
2 most current Notices of Assessment (proof that no personal taxes are owing)
Verification of Business for Self
Business Licences
Registration of your proprietorship
Last 2 years GST/HST remittance forms
Etc
Up to 90 days of bank history to show you have the down payment and closing costs necessary
If you are incorporate/a corporation, you may need the following documents to provide to your broker/lender:
2 most current Notices of Assessment-You need to show you HAVE AN INCOME!
Up to 90 days of bank history to show you have the down payment and closing costs
Verification of Business for Self:
Last 2 years business licences
Articles of incorporation
Last 2 years GST/HST remittance forms
Last 2 years of Financial Statements
Business Registration Form
Etc
2. Work with a good Accountant or use Stated Income
Make sure you are working with a good accountant who knows what you plan to accomplish in the future and sets up your business accordingly so that you can show at least an average income on your notice of assessment (NOA).
You can also use “Stated Income” which is simply stating your income to be REASONABLE and to reflect the time you have been working within that industry instead of what you are personally reporting to Revenue Canada and paying taxes on.
For stated income be aware that you can only use this on refinancing, or purchasing primary residence, purchase plus improvements of primary residence, Second Homes, and investment properties.
3. Insurance considerations
For stated incomes, there are insurance guidelines that you need to be aware of.
Genworth and Canada Guaranty:
GDS (Gross Debt Service) and TDS (Total Debt Service) Ratio:
Credit Score of >680 and GDS/TDS ratios of 39/44
Credit score of <680 and GDS/TDS ratios of 35/42
Also, make sure that there are no personal taxes owing
Finally you will need to ensure that you are following the 2-2-2 rule. Check out our article for more information on this.
Plese note that CMHC does not have a STATED INCOME program.
Insurers give the following rate premiums for Business For Self (BFS):
As always we are here at Dominion Lending Centres to help. Contact me today! Cheryl Johns 250.216.2230 Cheryl@modernmortgagegroup.ca
This Blog post was written by Geoff Lee