Your income status has an impact on the mortgage you qualify for
If you are applying for a mortgage, the chances are that you are feeling confident about your current employment status and your ability to find a similar position if need be.
Your employment is a key aspect of being approved for a mortgage, and there are other aspects that you should familiarize yourself with as well. To learn about our mortgage process click here.
The actual status of your employment means more to the lender than you would think. You see, to a lender, your employment status is a strong indicator of your employer’s commitment to your continued employment.
So, regardless how you feel about the security of your position, it’s what can be proven on paper that matters most. Even if your employer has raved about how valuable of an employee you are, and even though you are on probation technically, you can rest easy because you aren’t going anywhere; or although on paper your hours are not guaranteed, in reality you will be working full time hours the bare minimum.
Let’s walk through some of the common employment statuses, and how the lenders view them.
Permanent Employment. This is the gold star, if your employer has made you a permanent employee, it means that your position is as secure as any position can be. When a lender sees permanent status (passed probation), it gives them the confidence that you are valuable to the company and that your income can be relied upon.
Probationary Period. If you have only been employed with a company for a short period of time, you are going to have to prove that you have passed any probationary period. Most probationary periods last 3-6 months, however they can be longer depending on the type of job. The lender will want to make sure that you are not under a probationary period because technically an employer can terminate your employment without any cause while you are under probation. There isn’t a lot of confidence for the lender if you haven’t made it through your initial evaluation period by your employer.
It is not really the length of time with the employer that is the issue here, it is the status of your probation. So if you have only been with a company as an employee for 1 month, but you have been working with them as a contractor for a few years, and they are willing to waive the probationary period based on a previous relationship and experience with you, that should give the lender the confidence they need as long as you are able to get that documented.
Parental Leave. If you are currently on, planning to be on, or just about to finish a parental leave, regardless of the income you are currently collecting, as long as you have an employment letter that outlines your guaranteed return to work position (and date), you can use your return to work income to qualify on your mortgage application. It is not the parental leave that the lender has issues with, but rather it is the ability you have to return to your position you held prior to going on leave.
Term Contracts. This is hands down the most ambiguous and misunderstood employment status as it is usually well qualified and educated individuals who are working excellent jobs with no documented proof of future employment. A term contract specifies that you will be paid to do a certain job from a start date to an end date. This is not a lot for a lender to go on when evaluating your long term ability to repay your mortgage.
The real issue here is that even though most term contracts get renewed or extended, it is not certain that your employer will, and hence there are no guarantees with your employment.
But that does not mean that you are dead in the water. In order to qualify on a term contract, there are several options you can provide to a lender, who will consider different ways to look at it.
The best would be to establish the income on at least a 2 year period This is where the 2 year NOA or T4s come into play, the lender would simply the average of the last 2 years and use that for income.
Sometimes lenders also like to see that the contract has been renewed at least once before.
If you have recently changed jobs, or are thinking about making a career change, and you may need to think about qualifying for a mortgage because your current mortgage is up for renewal, you are considering refinancing or you are in the market to purchase, or if you have any questions at all, please don’t hesitate to contact me anytime.
We can work through the details together and make sure you have a plan in place.
Canada Mortgage Rates- a Handy Guide to cibc mortgage rates
The Rate Tango: Canada Mortgage Rates Variable vs Cibc Mortgage Rates Fixed. Become an expert on Canadian Mortgage Rates with our Handy Guide. Many first time home buyers are wondering whether they should take advantage of this low rate or if they should lock in the more secure fixed rate mortgages.
Is This The End Of 5% down payment?
CMHC is the government body that insures mortgages. To put it in the simplest of terms, when CMHC insures a mortgage, it means the bank essentially does not have any risk when it issues the loan. Of course there’s some risk carried by the bank but the Government…
Mortgage Penalties In the Media Again
A self-employed, single mother of a 12 year old boy, also taking care of her elderly mother, made CBC headlines for having to pay a $30,000 early termination penalty on her mortgage, when she was forced to sell her house in April, due to the COVID-19 pandemic.
Daily Corona Virus Mortgage Updates
Canada’s lowest nationally available conventional variable rate is just nine basis points cheaper than a comparable 5-year fixed rate. That minuscule “fixed-variable” spread is now 80% narrower than its 10-year average. The market is no longer compensating new borrowers for the risk of a floating-rate mortgage.
CMHC Rule Changes
Traditionally – if the waters are rough, you do whatever you can to not rock the boat. CMHC today however has rocked the boat. The housing market has weakened over the last few months, due to the pandemic, but Canada’s largest default insurer is making it tougher for people to get a mortgage…
How to Get Financing during the COVID Pandemic
Most of you are going to be very angry at this post because it may seem like I am actually encouraging people to get out there and buy properties.As a matter of fact, anyone who calls me asking for financing options, the first question I ask them is: “Are you really going to be buying a property in the next 3 months?”
Variable Rate Update
During the start of the lockdown due to the COVID crisis, banks hiked their variable rates discounts to prime – 0%. At the time, we predicted that variable-rate discounts will improve significantly once again. Well, very slowly now, we are starting to see this happen.
Coronavirus related to your mortgage
Believe it or not, the coronavirus can have an impact on your mortgage and your interest rate in particular. Listen below to find out exactly how and why.
The Recent Bank of Canada Rate Increase- one broker’s thoughts
What about this recent Bank of Canada Interest Rate Increase? If your discount from Prime -which is now now 3.20%- is 0.50% or deeper – then the variable rate product remains a really great place to be. If your discount from Prime is 0.25% or less, then depending on which lender you are with you may consider…
Employment status Impacting Your Mortgage Qualification
If you are applying for a mortgage, the chances are that you are feeling confident about your current employment status and your ability to find a similar position if need be. Your employment is a key aspect of being approved for a mortgage…