Income confirmation is a crucial part of the mortgage approval process as it assures lenders that the borrower has the capacity to repay the loan. It doesn’t matter how large your down payment is, or how much equity you have in your property. Mortgage lenders are required to confirm that the borrower’s debt to income ratio is within the maximum allowable limits.

I know it may seem like common sense that an excessively large down payment, or equity position in an existing property is enough to protect the lender. However, the mortgage approval process can sometimes defy logic, or what is otherwise seemingly common sense.

There used to be pure equity mortgages available, but these have disappeared over the last few years. While it may seem that mortgage lenders would love to foreclose on a property with plenty of equity, this is not a road they are interested in following. For this reason, they need to do confirm that the borrower has sufficient income to comfortably repay the loan. 

Regardless of whether we are dealing with a major bank, credit union, or monoline lender, the documents required for income confirmation are the same. What changes is the requirements depending on whether you’re self-employed or employed by an institution. By having a better understanding of what mortgage lenders are looking for, it can help to eliminate additional requests, therefore giving you a better experience with the mortgage arrangement process. 

 

 Income Confirmation For Employed Applicants

 The basic documentation required for employed applicants is seemingly straightforward, but additional explanation may be helpful in giving you a better understanding of the exact requirements. There are three basic documents required:  

 

  • Letter of employment
  • Recent paystub
  • T4s

 

Letter of employment

You would obtain this from your human resources, payroll department, or from your supervisor. Most mortgage lenders will require it to be dated within 30 days, and must show your position, start date and annual income. There are some employers who require their staff to download their job letters through an online portal. This can save your human resources department some time, however most mortgage lenders will require the letter to be signed. If it’s unsigned, then additional documents may be requested. The easiest way is to get the letter signed by a supervisor.

 If you are paid hourly, then it should show your hourly wage as well as the number of hours you are guaranteed to work each week. It’s important that it specifies that your hours are guaranteed. If your employer will not state this on the letter, or if they don’t guarantee you a specific minimum number of hours, then mortgage lenders will require your last two years T4s (providing you’ve been at your job long enough to have two T4s from the same  company). If you only have one T4 from your current job, then this can be averaged out with the year to date gross income on your most recent pay stub. In most cases, this only works if it’s later in the year when you’re YTD income is high enough to become beneficial. The two year average is used when the most recent T4 (or YTD income) is higher than the previous years T4. If it’s lower, then the lower amount will generally be used.

If you’ve been at your job for less than one year, and you’re not guaranteed a specific number of hours, then we’ll need to assess your situation individually and let you know your available options.

If there is any additional information relating to your employment, then this should also be stated on the letter.  This includes but is not limited to the following:

 

  • Maternity / paternity leave (must state your expected return to work date)
  • Probationary employment (must state probation end date)
  • Temporary, acting, or seasonal employment
  • Contract with a set end date

 

Most employers will also want to call your employer to verbally verify your employment letter, so it’s a good idea to give your employer the heads up that they’ll be receiving a phone call. It’s not uncommon for lenders to tell us that they’ve left several messages with no response. Giving your employer advance notice can help to eliminate this problem, which can also help to speed up the process.

 

Recent pay stub

At least one recent paystub will be required. This will show your gross and net pay, along with all taxes deducted. It shows both current and year to date numbers. Paystubs must be no older than 30 days at the time we present them to the lender. The exception is with maternity / paternity leave. In this case, you can provide the last paystub issued to you prior to going on leave. Some lenders may also require your last two years T4s. 

 

T4s

In situations where you have a non-guaranteed component to your income, such as bonus, commission, or overtime, then T4s will be required for the last two years. This is assuming both T4s are from the same employer. If you retrieve your T4s from your MyCRA online account, then they will not show your name, which means that a lender can’t confirm they belong to you. If don’t have your original T4s given to you by your employer, then we can assist in obtaining them for you.

 

Income Confirmation For Self Employed Applicants

 Most mortgage lenders will require self-employed applicants to have been in business for a minimum of two years. If it’s less than two years, then there may still be options for you, however they would be more limited.

The following documents will be required for self-employed applicants:

 

  • T1 Generals
  • Notice of Assessments (NOA)
  • Articles of Incorporation, or valid business license (if applicable)
  • Corporate Financial Statements (if applicable)

 

T1 Generals (tax returns)

When self-employed, all mortgage lenders will require your full and complete T1 Generals for the past two years. Summaries and condensed versions are generally not accepted, so make sure you have your full and complete reports.

Even if you own a small percentage of the business, you’re still considered self-employed and the same requirements apply.

 

Notice of Assessment

Mortgage lenders will require your NOAs for the past two years. If there is an outstanding tax balance owed, then you’ll be required to show this has been paid. If you are accessing your NOAs from your MyCRA online account, then these won’t show your name, which means a mortgage lender can’t confirm that they belong to you. If you do not have your original NOAs that were sent to you by mail, we can advise on how these documents can be easily obtained within 24 hours.

 

Articles of Incorporation, or valid business license (if applicable)

In situations where you have a registered business or a corporation, then you’ll need to provide either a business license or articles of incorporation.

 

Corporate Financial Statements

If your business is incorporated, you’ll be asked for a two year history of your financial statements provided to you by your accountant.

 

Conclusion

This covers basic lender requirements and will be everything a lender will require to confirm income for the vast majority of applicants. However, mortgages can be complex instruments with many moving parts, so if there is anything unique about your particular situation, then reach out to us with the details and we’d be happy to let you know your options.

My goal is to give you a better experience with your mortgage than you’ll get anywhere else. My team and I are very serious about coming through with this promise. The more guidance we can give you along the way, the easier it will be for us to accomplish our goal.