What Counts as Income for Mortgage Purposes
October 5, 2018 | Posted by:
Most people understand what they need to include as income when doing their taxes at the end of the year, but some are unclear about what they can consider income when it comes to a mortgage. Today, we’re going to clear that up so that you can paint a more favorable picture of your financial state of affairs before approaching lenders.
A Comprehensive Accounting of What You Can Count as Income Towards a Mortgage Loan in Winnipeg MB
There’s no grey area here. Whether paid by the hour or on a salary, this T4 item is directly counted towards your mortgage. Proof of income can come easily through an employment letter, current pay stubs, T4 slips, T5 slips, and any other official document that is used to declare your income to CRA. If the income is consistent over the last two years, you will be much more attractive to lenders.
If you’ve recently started a new job, here’s what you need to know about how your new income can be applied to your mortgage application.
If you receive commissions and bonuses on top of your wage/salary, this can be included too. Consistency is the key. If commissions/bonuses have been steady (in amount and frequency) over two years (or longer) then the more likely lenders are to consider it for your home loan.
However, if you work solely on commission, you will appear more risky to lenders. While your commission history may show dramatic and favorable spikes, they will look closely at the low periods, and use that to determine what you can afford when it comes to monthly mortgage payments. Again, the more consistent your commission history is, the more favorable you look as an investment.
If you work in a field that supplements income with tips, then you can include this form of income on your mortgage application, assuming that you’re declaring it on your tax returns. While this most common form of income supplement applies to servers in the hospitality industry, there are implications for Uber/Lyft drivers (recently instituted in Winnipeg MB) who consistently receive tips too. Again, if it goes on your income tax returns, add it to your mortgage application.
In the summer of 2018, the federal mortgage insurance agency Canada Mortgage and Housing Corp (CMHC) announced that they are giving lenders more guidance and flexibility when it comes to self-employed borrowers, offering more leniency for those who have been running a business for less than two years. If you’ve just started out, that’s good news. And if you’ve been running a profitable business for longer, it’s even better. Your business income can be proven by providing lenders with a notice of assessment accompanied by a T1 General tax form, a proof of income statement from CRA, and a T2125 form which is your statement of business or professional activities. View more on getting a mortgage when depending upon self-employed income.
If you currently own a rental property, you can absolutely apply the revenue as income towards another mortgage. That’s pretty clear.
In addition, if you place your home on Airbnb or VRBO (etc.) and your short term rental (STR) revenue is consistent, include that in your mortgage application. CRA requires that you file form T776 (Statement of Real Estate Rentals) and declare the income on line 126 of their federal return. If CRA treats it as income, lenders may very well too.
However, what about if you want to enter into a second home mortgage as a means to drive in rental income? Can that be applied accordingly, even if you can’t yet prove rental revenue. You can indeed apply projected rental income to help qualify for a mortgage. You will need to bring in a licensed property appraiser to help determine projected rental income. Lenders may or may not be willing to consider this, but it certainly doesn’t hurt to include it.
Securities, bonds and other investments (including those that bear dividends) may be included in your mortgage application if it can be demonstrated that consistent income amounts have been available for the past two to three years, and is therefore reasonably expected to continue. However, if a lender deems the income from an investment to be highly speculative, they won’t likely count it.
Alimony and/or Child Support
This absolutely counts as income, and if court mandated (vs a casual arrangement) lenders will deem it to be more valid. History of consistent payments is important too, and lenders may even look to the income stability of the provider (the one making the alimony / child support payments) as a means to gain confidence that this will remain to be a steady form of income that can be applied to your monthly mortgage.
A retirement pension that is proven and consistent counts as income towards a mortgage. However, annual retirement income is unique to everyone, so you may be able to add in more than CPP, including Old Age Security (OAS), RRSPs, pooled registered pension plan payments (PRPP), payments from a registered retirement income fund (RRIF), and other pensions and superannuation income. View more on getting a mortgage after retirement.
If you have any additional questions about what may count as income towards your Winnipeg mortgage, and/or understand that you need a mortgage broker in your corner before approaching lenders, contact Ron Chan today.