THIS vs THAT 11 | Verified Income vs Stated Income

Michael Hallett • Sep 28, 2018
Income is income. Yes and No. The underwriters that work for the lenders are mandated to constantly assess the risk level of each client. They are tasked with determining the probability of the borrower repaying the mortgage amount on-time, plain and simple. As income earners there are many ways to structure how we are paid.

In the mortgage industry there are basically two different classifications for earning an income; employee or employer/self-employed.

For an employee we consider one’s gross income as verified income. This is the total income reported to Canada Revenue Agency (CRA) from January 1st to December 31st in any given year. The income amount is documented on T1 Generals, T4s and Notice of Assessments, it’s referenced LINE 150. We utilize this line item amount to qualify the mortgage amount. There isn’t anything we can change.

Self-employed income earners file the same taxation documents with CRA. But as a self-employed person there are tax rules that allow business owners to reduce their reported income through write-offs (for further details please consult your certified accountant). When a self-employed mortgage consumer needs to qualify for financing we utilize the same LINE 150 income. Depending on how their accountant has structured their income will determine their borrowing power through the verified income process. If the gross annual income is too low to qualify for the required amount, we can proceed with a process called stated income. This takes a further examination of their financial documents to determine if any of the write-offs can be added back to the total income.

Going with a stated income mortgage product will end up costing a bit more, but the borrower can qualify for a higher mortgage amount. This may be the difference between ultimately buying or refinancing into exactly what they want.

As mortgage consumers the lenders require us to provide documentation to upon borrowing money for purchasing or re-financing real estate. The lists are slightly different depending on one’s income classification.

Employee:

Letter of employment
Most recent pay stub
Most recent 2 years of T4s
Self-employed:

Most recent 2 years of Notice of Assessments (issued by CRA)
Most recent 2 years of T1 Generals along with Statement of Business Activities
Most recent 2 years of accountant prepared financial statements, if incorporated
*The combination of documents can vary from lender to lender.

If you have any questions on how to structure your income to plan for a future real estate purchase or refinancing, please do not hesitate to contact me.

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Understanding the Recent Housing Affordability Measures in Canada

By Michael Hallett • 18 Apr, 2024
In recent years, housing affordability has become a significant concern for many Canadians, particularly for first-time homebuyers facing soaring prices and strict mortgage qualification criteria. To address these challenges, the Canadian government has introduced several housing affordability measures. In this blog post, we'll examine these measures and their potential implications for homebuyers. Increased Home Buyer's Plan (HBP) Withdrawal Limit Effective April 16, the Home Buyer's Plan (HBP) withdrawal limit will be raised from $35,000 to $60,000. The HBP allows first-time homebuyers to withdraw funds from their Registered Retirement Savings Plan (RRSP) to use towards a down payment on a home. By increasing the withdrawal limit, the government aims to provide young Canadians with more flexibility in saving for their down payments, recognizing the growing challenges of entering the housing market. Extended Repayment Period for HBP Withdrawals In addition to increasing the withdrawal limit, the government has extended the repayment period for HBP withdrawals. Individuals who made withdrawals between January 1, 2022, and December 31, 2025, will now have five years instead of two to begin repayment. This extension provides borrowers with more time to manage their finances and repay the withdrawn amounts, alleviating some of the immediate financial pressures associated with using RRSP funds for a down payment. 30-Year Mortgage Amortizations for Newly Built Homes Starting August 1, 2024, first-time homebuyers purchasing newly built homes will be eligible for 30-year mortgage amortizations. This change extends the maximum mortgage repayment period from 25 years to 30 years, resulting in lower monthly mortgage payments. By offering longer amortization periods, the government aims to increase affordability and assist homebuyers in managing their housing expenses more effectively. Changes to the Canadian Mortgage Charter The government has also introduced changes to the Canadian Mortgage Charter to provide relief to homeowners facing financial challenges. These changes include early mortgage renewal notifications and permanent amortization relief for eligible homeowners. By implementing these measures, the government seeks to support homeowners in maintaining affordable mortgage payments and mitigating the risk of default during times of financial hardship. The recent housing affordability measures announced by the Canadian government are aimed at addressing the challenges faced by homebuyers in today's market. These measures include increasing withdrawal limits, extending repayment periods, and offering longer mortgage amortizations. The goal is to make homeownership more accessible and affordable for Canadians across the country. As these measures come into effect, it's crucial for homebuyers to stay informed about the changes and their implications. Consulting with a mortgage professional can help individuals explore their options and make informed decisions about their housing finances. If you're interested in learning more about these changes and how they may affect you, please don't hesitate to connect with us. We're here to walk you through the process and help you consider all your options and find the one that makes the most sense for you.

A First Home Savings Account (FHSA)

By Michael Hallett • 18 Apr, 2024
Dreaming of owning your first home? A First Home Savings Account (FHSA) could be your key to turning that dream into a reality. Let's dive into what an FHSA is, how it works, and why it's a smart investment for first-time homebuyers. What is an FHSA? An FHSA is a registered plan designed to help you save for your first home taxfree. If you're at least 18 years old, have a Social Insurance Number (SIN), and have not owned a home where you lived for the past four calendar years, you may be eligible to open an FHSA. Reasons to Invest in an FHSA: Save up to $40,000 for your first home. Contribute tax-free for up to 15 years. Carry over unused contribution room to the next year, up to a maximum of $8,000. Potentially reduce your tax bill and carry forward undeducted contributions indefinitely. Pay no taxes on investment earnings. Complements the Home Buyers’ Plan (HBP). How Does an FHSA Work? Open Your FHSA: Start investing tax-free by opening your FHSA. Contribute Often: Make tax-deductible contributions of up to $8,000 annually to help your money grow faster. Withdraw for Your Home: Make a tax-free withdrawal at any time to purchase your first home. Benefits of an FHSA: Tax-Deductible Contributions: Contribute up to $8,000 annually, reducing your taxable income. Tax-Free Earnings: Enjoy tax-free growth on your investments within the FHSA. No Taxes on Withdrawals: Pay $0 in taxes on withdrawals used to buy a qualifying home. Numbers to Know: $8,000: Annual tax-deductible FHSA contribution limit. $40,000: Lifetime FHSA contribution limit. $0: Taxes on FHSA earnings when used for a qualifying home purchase. In Conclusion A First Home Savings Account (FHSA) is a powerful tool for first-time homebuyers, offering tax benefits and a structured approach to saving for homeownership. By taking advantage of an FHSA, you can accelerate your journey towards owning your first home and make your dream a reality sooner than you think.
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