As we get ready for the tax season, now more than ever you need to plan ahead.  This is especially crucial when it comes to self-employed borrowers. We’ve provided some insight below on how reporting your income can affect you as a home buyer or borrower.

Self Employed Borrowers

For self-employed people, banks will look at your past two years of taxable income on your tax returns.  If it is declining in the most current tax year, that is the amount that the bank will use. The two-year average is only used when you are in an increasing trend.  For example, if you show $50,000 of  net income in 2018 but in 2019 you only show $32,000, the banks will use $32,000 for your mortgage qualification. Alternatively, if you showed $32,000 in 2018 and $50,000 in 2019, then the bank will use $41,000 as the two-year average.  If you are a sole proprietor, we can increase that by 15% and use an income of $47,150.

If you are incorporated and take dividend income or T4 income, it will be different. However, banks will still use a two-year average if it’s an increasing trend. Similarly, if it’s declining, they will use the lower income.

Salaried and Hourly Employees
For salaried and hourly employees, banks will use your full-time or part-time guaranteed income.  You must have guaranteed hours in order for the bank  to use it.  If you are casual and working full-time hours your employer is required to confirm that you have guaranteed hours. Banks will require you to have been there for two years and will use the average income for qualifying.

Bonus and Commission Income

Banks will take this income into account for qualifying for a mortgage and again, will take the two-year average. If year two is declining, that is the amount they will use on your mortgage application.

Each application is unique and the best way to get qualified is for us to review your file.  We have lenders for all situations:

• Self employed programs
• High net worth programs
• Medical professional programs
• Equity-based products
• Child tax income
• Rental income

We will do everything we can when it comes to finding the best lender for your unique situation. Contact us today before tax season is in full swing.