Understanding Employment Verifications

When you go in to apply for a mortgage your employment status is a major factor of the lending process. In order to be approved for a mortgage you will need to provide multiple documents, according to your employment status, to prove how many hours you work and at what rate. All this information is crucial to the lending process because the lender wants to know that you can afford your mortgage payments and that your ability to pay is stable. The following are the various aspects of your employment verification that will be analyzed and the requirements that will need to be met for each.

Salary Verification

The mortgage lender will want to see proof that you can comfortably afford the impending mortgage payments. A letter of employment can be requested from your workplace that will include this information as salary verification.

Steady Hours

To prove that you have steady hours, the lender will want to see a recent pay stub to show your rate of pay and guaranteed hours per day. They may also want to see your last 2 years of Notice of Assessments from the Canada Revenue Agency or your T4 slips.

Method(s) of Income

• Part-time Employment: Part-time employment means that you aren’t guaranteed a minimum number of hours on your letter of employment. If this is the case, then you will have to wait until you’ve accumulated a 2 year history in your position.

• Self-Employed: Having a mortgage professional on your side will help enormously in this category. A 2 year history will be required of all invoices, T4s, bank histories, etc. It is a complicated process but not impossible if you have a professional guiding you throughout the process.

• Vehicle Allowance: Some employees are permitted a vehicle allowance per kilometer and/or as a flat rate per day. This amount can be used in your income total as long as it is taxable income.

• Alimony or Child Support: If these things are being paid out monthly then they must be counted as a personal liability to you. If you are receiving payments then they must not make up more than 30% of your overall income. In either case, you will be required to provide documentation through a bank history as well as a copy of the agreement made between you and the other party (ie. Divorce or separation agreement).

• Overtime/Bonuses/Shift Rate Differential: This relates to any bonuses or extra pay you’ve received for overtime or extra shifts throughout the year consistently and that you will likely continue receiving. A history of 2 years is again the requirement for these extra hours. If you cannot show consistency for the past 2 years in this type of payment then a lender will be forced to look at your base salary, which is almost guaranteed to be much lower than your actual income.

• Commissioned Employees: The rules are strict on this type if you have less than 15% down on your home. In that event, you will need to supply a 2 year history in order to proceed as a 100% commissioned employee. Without those 2 years your situation will be viewed as unstable and you will have to wait to apply for a mortgage until you can prove otherwise.

If you do your due diligence and obtain documentation per everything that applies to you on this list then you will be in good shape for mortgage approval. If you have any questions or are unclear about any of these points then talk to a mortgage professional. It’s important to know what you are in for before you begin looking at potential homes. It takes time to build up a good 2 year history and obtain all the verification you need. Starting early and being completely informed will ensure you have a stress-free mortgage approval.