Income structures to ensure mortgage eligibility

So here in the province of Alberta there are some amazing opportunities for very lucrative positions.

You find yourself a great opportunity and know that you are bringing in some very good income so you decide to purchase a home. But then something horrible happens. Your mortgage professional takes a look at your income documents and regretfully informs you that you do not in fact qualify for a mortgage and your dreams of home ownership are blown to smithereens.

Before all of this happens, let’s take a look at different types of income structures and exactly what the mortgage lenders will consider acceptable.

Salary – this is by far the most loved form of income for all of the lenders. Your letter of employment will state exactly how much you will make in no uncertain terms.

Hourly – in a close second is a nicely worded letter of employment for the hourly employee. The employers generally clearly lay out how many hours you are guaranteed per day and the rate of pay.

The lenders will require a letter of employment, a recent pay stub and likely your last two years of Notice of Assessments from the Canada Revenue Agency or your T4s.

And now we get into the grey area of income types.

Part-time employment – this can apply to you whether you are a health care professional or a fast food cook. If you are not guaranteed a minimum numbers of hours on your letter of employment we will have to wait until you have a two-year history in your position before we can proceed.

Shift rate differential/bonuses/overtime – this one is the one that most often snags the oilfield workers here in Alberta. Lenders love the two-year history. It allows them to determine that the extra income you have received from bonuses or overtime are consistent and are likely to continue.

Without the two-year history we are forced to rely on your base salary or hourly income and often this is significantly lower then what you are actually earning.

Vehicle allowance – many of our clients earn a vehicle allowance. This can be in the form of per km or a flat day rate or sometimes both. But you should know that unless that amount is taxed you cannot use it as part of your income.

Child support or alimony – these can hurt you or help you. If you are paying these out then we have to add them in a monthly liability. If you are receiving them we are able to use them as part of your income but this amount cannot make up more than 30% of your income. You will be required to provide proof of these amounts through a banking history as well as your separation/divorce agreement.

Self-employment – recent changes by the government have affected this type of borrower the most. Again, you will be required to have the two-year history and we will need more paperwork then you can imagine. The guidelines for self-employed borrowers are tricky and extensive so having a qualified mortgage professional can help immensely.

Commissioned employees – a two-year history is the only way you will be able to proceed as a 100% commissioned employee unless you have at least 15% to put down on your home.

So there you have it my friends.

The different types of employment pay structures and just how they may affect you personally.

Your best plan is to have your documents reviewed well in advance of placing an offer so that you can mitigate any of the above and avoid the heartache and stress of not being able to purchase that dream home.

Pam Pikkert is a mortgage broker with Dominion Lending Centre – Regional Mortgage Group in Red Deer.

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