In applying for a mortgage, the lender evaluates the borrower’s ability to service the debt.
That means being assured the borrower has a high enough income to make the mortgage payments.
Provincial regulations regarding mortgage lending practices require that lenders are diligent in requesting documentation that provides verification of the borrower’s income.
The documentation that is required will be dependent upon the type of employment or source of income.
If you are employed, self-employed or have rental income, the following provides a list of the documentation that may be required by your lender.
This checklist is not exhaustive but will help you get started with gathering up the paperwork.
Salaried or wage earners will need to provide a recent pay stub and current employment letter to confirm their current salary or hourly rate.
The employment letter must be on letterhead (including full address and contact information), signed and dated, and include employees name, position and salary.
If there is income from overtime, bonuses, profit sharing, or the employment is seasonal or fluctuating, lenders will require a minimum of two years of the most recent Notice of Assessments (NOA) and/or the past two years tax returns (including business related schedules) to determine that income is consistent from year to year.
A NOA is an annual statement sent by Canada Revenue Agency to the taxpayer after they have received your federal income tax return.
Lenders may require a copy of your most recent NOA to confirm that any tax owing has been paid. If you have an on-line account with CRA, these documents can be printed electronically. Make sure to print or copy all of the pages from your NOA.
If you are a sole proprietor an average of two full years of income can be confirmed by NOA’s and/or T1 Generals that includes the Statement of Business Activities.
If the most recent NOA’s show that there is income tax owing, the lender will require documentation showing that the taxes have been paid in full.
If you are a partnership, incorporated or limited company, income can be verified by financial statements that were prepared by a professional, accredited accountant.
T1 Generals and NOAs will verify the income on the financial statements. Different lenders use different methods of calculating how much rental income they will count towards qualifying.
Rental income is typically verified by a signed lease agreement and/ or an appraisal report that indicates fair market rents. A lender may also request T1 Generals and/or Bank statements as an additional form of confirmation in addition to the lease agreements.
Keep in mind that every situation is unique and you may be required to provide additional documentation.
