This month we’re exploring the different ways your employment situation affects the mortgage application process. As you find out in our last blog, there are a lot of myths surrounding what you need to have but we’re all about finding solutions — regardless of how nuanced your employment situation is!
- Length of tenure (time employed)
Myth: This is a common myth that comes up all the time for us, and we’re not sure why. Many potential clients think that they need to have worked at their job for two years to qualify for a mortgage. We have a super interesting response to this one.
Fact: You don’t, necessarily, need to be working for two years to qualify for a mortgage! If you’re employed full-time and have passed probation (typically three months), that’s usually good enough assuming everything else in your deal works. As a caveat though, the employment situation has to make sense. The case of someone who goes to school for four years and then gets a job in their field is a logical progression from the lender’s standpoint. Even though that person may be new, this employment story works because it’s a typical trajectory. If someone goes to school for engineering however but then gets a retail job, this case might not work as easily. Tenure obviously matters but so does the context.
Pro-tip: Have a letter of employment that states you are out of your probation period or, at the very least, when your probation will period end.
- Full-time or part-time employment (guaranteed hours or not)
Myth: Many potential clients have approached us and asked if they need to be working full-time to qualify for their mortgage. People think they NEED to be employed full-time.
Fact: If you’re a full-time, salaried employee, it’s a simple case and you’re likely good to go. If you’re paid hourly and have guaranteed hours each week, you’re very close to being salaried in the eyes of a lender. As long as your employer will state that your hours are guaranteed, there’s no issue. Otherwise, you would fall into the category of needing a two-year history of income. This category would apply if you’re a part-time employee working additional shifts, a contract employee who gets extended, a casual employee with no guaranteed hours, or even a full-time employee who needs overtime to qualify for their mortgage.
- Overtime and other additions
Myth: Some of my clients have thought their overtime pay, additional hours/contracts, or bonuses can’t be used for their mortgage application.
Fact: Additional hours/contracts, or bonuses can be used for your mortgage! If you have a two-year history of getting overtime pay, additional hours/contracts, or bonuses consistently, this will work from the lender’s perspective.
Pro-tip: Have your letter of employment state the number of guaranteed hours (as a minimum) you work per pay period and be sure that your pay stubs match these details.
- Type of employer
Myth: In my hometown of Ottawa, ON, many of our potential clients think it may be more difficult to get a mortgage if they are not working for one of the government bodies. They think only government or high-tech employees in Ottawa can get mortgages.
Fact: Your employer, industry, and type of employment are all factors that influence this aspect of your mortgage application. A full-time indeterminate government employee is treated differently than a full-time contract government employee. A small business owner is treated differently than an employee at that same business. What’s important is that we fully explore and understand your full situation to position the application in the best way possible.
- Employment insurance (EI)
Myth: If you claim employment insurance (EI), you can’t use that as income for your mortgage income. You pay into EI as part of your employment deductions, and therefore it’s there for you to use when you need it if you qualify.
Fact: Actually… you can use EI in your mortgage application! If receiving EI is consistent in your industry, like seasonal industries (roofing, gardening, snow removal, tree planting, etc.), and you have a two-year history of employment, this can be considered part of your income.
- Parental leave
Myth: The federal government in Canada changed the potential duration of parental leave from 12 months to a max. of 18 months in 2017. Depending on where you work, parental leave benefits may not last that long. The common thought among clients is that if they’re not working they don’t have the income to record for their application.
Fact: We can actually use 100% of your parental leave income! As long as we can obtain a letter of employment stating your income and return to work date, the majority of lenders will consider your full-time income.
- Net vs. gross income
Myth: Net income is usually what we start with to calculate your borrowing power. Just because you have a million in revenue, you didn’t necessarily make a million dollars. Net income essentially means income after expenses and taxes etc. Some self-employed folks have thought we can only use your net income for their mortgage application.
Fact: Depending on your industry, we may be able to use additional income from business revenues, bank statement deposits, invoices, and tax deduction add-backs. A sole proprietor who is a contractor could prove a higher income by showing invoices and bank deposits that are well above their claimed personal income. A sole proprietor who expenses their home office, a portion of their vehicle, and other things like capital cost allowance, can actually be added back to your net income. An incorporated entity could show greater cash flow than what’s indicated on a T4. As you can see, there are more ways than one!
Contact the Kyle Miller Mortgage Agent team to learn more about how various employment aspects impact the mortgage application process. We’ll take the time to understand your situation, explain all the different pieces of the puzzle, and provide you with the best options!
Recent Comments