While I'm hardly a master of analogies, I'd say that applying for a mortgage can feel like being a lion in the circus. Not because of the clowns ;), but because you're a majestic beast being forced to jump through many hoops, so that you can have a tasty treat at the end(your mortgage). While the number of hoops and the height may vary, the one which can be challenging for many mortgage applications is:

Income Verification

Income verification/qualification is the process by which your Mortgage Broker, and in turn your lender, attempt to verify both the amount and the sustainability of your income. If you don't have enough income to make your payments in a timely fashion, it becomes more difficult to get a mortgage approval (*note I said 'more difficult', not to be confused with impossible!). Due to constantly increasing instances of fraud and misrepresentation, it can be more difficult now than ever to verify and confirm your income.

Watching for Fraud

The last few years have played host to some well-publicized mortgage fraud, thanks to a few bad eggs ruining it for the rest of us who work hard and remain ethical and honest. As a result, the qualification and verification processes to obtain a mortgage have become more stringent and demanding. It's more important now than ever before to make sure you have a Mortgage Broker on your side who can help you navigate the process and explain the steps along the way.

Together, we will go through both your current earnings as well as your historical income to determine the best type of documentation to verify how much you are paid. This depends on factors such as your length of employment, how you are paid(hourly, salary, commission, etc.), or whether you are self-employed.

Employees

When you are an employee it can be easier to verify your income, since you are being paid by a third-party source. Depending on your type of income (salary, hourly, commission, tips, etc.) you may need only some or all of the following documents:

• Letter of employment from your employer
• Recent paystubs
• Your latest 2 years Notice of Assessment (CRA tax document)

By using all or a combination of these documents, we can verify your length and place of employment, your average earnings, and whether or not you are likely to continue earning this amount. Having an average of your past years income(NOAs) helps to establish your average earning potential, regardless of how your pay is calculated. It also helps to show a track record and whether your income is increasing or decreasing from year to year.

Self-Employed

Those who are self-employed often find themselves under more scrutiny when verifying income, and the reason is quite simple: If you  own the business, you are the one in charge of writing your own paycheque. In light of this, lenders want to confirm not only your income but also the income of the company. No matter the business you're in, you must be able to show that your earnings are reasonable in relation to the company's earnings. Income for those who are self-employed can be established by some or all of the following:

• Your latest 2 years T1 General tax returns(CRA tax documents)
• Your latest 2 years Notice of Assessment (CRA tax document)
• Your latest 2 years financial statements for your company
• Your most recent years T4s or T5s (employee or dividend income)
• 12 Months business bank account statements (to show current gross business income)

As always there can be exceptions to these rules and some lenders may ask for more or less documentation than others. Another important point is to consider the risk of your application overall. What is your 'loan-to-value', or the percentage of mortgage vs. the property value. The higher this ratio, the more a lender will want to verify your income beyond any doubt. They will also take into account your credit score; have you been late or missed any payments? Do you or have you had any accounts in collections? All these things can contribute to a 'riskier' mortgage application and may signal the lender to due more diligence with your particular file.

If you'd like to know more about how to verify your income, or how much income you might need to qualify then give me a call any time! You can also contact me online here or 'Like' my Facebook Business Page to keep up-to-date.