I thought I would write an article based on how the banks view your income as it is getting tougher and tougher to get a mortgage and knowing how the banks view you now is a valuable tool!
I will start with a regular 40 hour per week employee past their 3 month probationary period.
The bank will view your income as such if you are full time:
Pay rate ($25 per hour) x Full time hours (35-40) x 52 weeks = $52,000 —- That is what the bank will use as your income, assuming you are guaranteed full time hours and are not on probation.
The same calculation is used for salaried employees, although a little simpler:
Pay rate ($2500 a month) x 12 months = $30,000
For employees with a bonus or commission plus structure there are a few ways the banks can view your additional income. In almost all cases the banks want a minimum two to three years of you earning that bonus or commission though.
The most simple way a bank will calculate your extra income is by way of your last two years tax returns showing the line 150 or your personal notice of assessments, adding them together and dividing by two or three years.
- Guaranteed full time income of $52,000 + average of last 2-3 years of bonus income ($10,000 + $15,000 / 2) = $64,500. (This would be another they can calculate your income if your base salary or income has gone up over the years you would want an average of your bonus income separately.
For employees who are part time, the bank will want you to be at your job for a minimum of two years if you are not guaranteed your hours.
They will view your income as your last two years notice of assessments or T4’s and divide that by two.
- IE $20,000 part time 2013 income and $25,000 2014 part time income divided by two = $22,500
If you are part time but guaranteed hours they will use the same calculation as a full time employee.
- Guaranteed hours (20) x pay rate ($15) x 52 weeks = $15,600
Not every bank views income the same way, so if you get declined by one bank due to your income, a mortgage broker may be able to get you approved at another bank simply by them viewing your income differently.
I hope this helps everyone and feel free to contact us anytime.