Homeownership may feel like a distant, impossible dream for many Canadians. It is important to understand the basics of getting a mortgage while buying a home. A mortgage is one of the largest financial commitments in your life, and it takes more than just qualifying for the loan. Before you start shopping, assess your financial situation with a mortgage professional’s help and prepare to be financially ready to buy a home.
When you apply for a mortgage, the lender wants to be sure you’re able to pay it back after analyzing your income along with other aspects such as your credit score. The mortgage broker requires you to present supporting documents to prove your eligibility to qualify for the mortgage.
You need to prove to your mortgage lender that your income is reliable to be considered a creditworthy borrower. While it is easier to use online mortgage calculators to check the affordability, it may not paint a clear picture. Lenders calculate the gross debt service ratio (GDS) and your total debt service ratio (TDS) to calculate the maximum mortgage amount. As of July 1st, 2020, new GDS/TDS limits for CMHC-insured mortgages is 35/42; however other two mortgage insurers, i.e. Sagen (earlier known as Genworth) and Canada Guaranty have continued to qualify borrowers with 39/44.
What proof of earnings do I need as a full-time salaried employee?
Pay stubs/Payslips: The standard requirements are the most recent two payslips.
Notice of Assessment (NOA): Notice of Assessments from the CRA for the last two tax filing years to ensure no outstanding tax.
Letter of Employment: A letter stating your job title and status ensures stability and wins the lender’s confidence, especially if you secure a new job.
I am a part-time/ seasonal worker. How can I prove my income?
Along with the latest pay stubs and NOAs for the last two years, you may receive a letter from the employers explaining your position and status of employment, weekly hours and wage and type of work (permanent or temporary).
If you are an independent contractor, a copy of the contract and any renewals along with two years of NOAs and T4 would be required.
What proof of earnings do I need as a self-employed?
There are a few ways you can prove your income as a self-employed individual – freelancer or small business owner, sole proprietor including:
- Notices of Assessment for two years
- Two years of T1 general tax returns
- Two years of accountant-prepared financial statements
- Business license of articles of incorporation
- Business bank statements (three-six months)
- Business Invoices
Verifying income from other sources
Child support – a copy of the Child Support order or three to six months of bank statements
Canada Child Benefit – a copy of the CCB notice from CRA or three to six months bank statements showing deposit
Disability- Income received for permanent disability can be supported through doctor’s letter, annual statements and bank statements showing deposits received
Parental leave – some lenders will recognize full employment income if a letter of employment confirms a return date within one year
Pension, Registered Retired Income Fund, investment income – most recent tax assessment and/or T4As for pension income
It would help if you also had the latest checking and savings account statements, monthly debt obligations and other loan statements(personal, student, auto, etc.) and your most recent credit card statements. Lenders may have different requirements and you should be preparing all the documents to submit them in a timely manner.
Dominion Lending Centres NasaKasa
If you plan to buy a home, let us help you guide you regarding the verification of income and the documents required in the mortgage process. Our experts ensure that all the necessary paperwork is submitted to the lenders as per the checklist.
You can reach us at 905.997.7001 or email us at email@example.com to begin your home buying journey.