Income Verification Documents: What You Need to Be Approved for a Mortgage

Posted by Dave Kotler on Thursday, July 20th, 2023 at 11:34am.

Income Verification Documents for Mortgage ApplicationsObtaining a mortgage requires careful preparation and an understanding of the income verification process. Lenders carefully evaluate applicants' financial stability by examining various documents that substantiate their income.

By familiarizing yourself with these essential income verification documents, you can approach the mortgage application process confidently and increase your chances of success in securing a mortgage. Most people won't need all of these documents, as some are exclusive to business owners or real estate investors. However, it can still be helpful to know the types of documents that are helpful for the future. Here is what you need to know about the documents you should have prepared when purchasing a home in Kelowna.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

Pay Stubs

Pay stubs are a commonly required income verification document for obtaining a mortgage, and can be easily accessed and printed from online portals or ePost. These documents provide detailed information about an individual's earnings, deductions, and other relevant financial details.

Lenders often request the three most recent pay stubs to assess an applicant's income stability and ability to repay the loan. Pay stubs offer valuable information about regular wages, overtime pay, bonuses, commissions, and any other forms of income received by the borrower. They also outline deductions made for taxes, insurance premiums, retirement contributions, and other withholdings.

By examining pay stubs, mortgage lenders can accurately assess an applicant's income level and determine their eligibility for a mortgage.

A Letter From Your Employer

Contrary to expectations, a letter from the employer serves as an essential piece of evidence for the mortgage application process, shedding light on key details such as job title, employment start date, current salary or required weekly hours of work, and hourly pay rate.

This document must be an original on the employer's letterhead and should be dated and signed by an appropriate person, such as a human resources representative or the borrower's supervisor.

The letter should include:
  • Job title: Clearly stating the borrower's position within the company.
  • Employment start date: Indicating when the borrower began working for the company.
  • Current salary or required weekly hours of work: Providing information about their income level or expected workload.
  • Hourly pay rate: Specifying how much they earn per hour.

By providing these details, lenders can assess the borrower's stability and ability to repay the mortgage loan effectively.

Proof of Additional Income

In order to provide a comprehensive view of their financial situation, borrowers often seek to substantiate their earnings through the submission of supporting documentation. This includes evidence of overtime pay, Christmas bonuses, profit sharing, and income earned on a seasonal basis.

This additional income can significantly impact an individual's ability to make mortgage payments and therefore plays a crucial role in the loan approval process. Lenders typically require two years' worth of Canada Revenue Agency Notices of Assessments to verify that fluctuating income can be relied upon consistently over time.

These assessments not only demonstrate the borrower's income but also serve as proof that their taxes are up-to-date and they are not indebted to the government. By presenting these documents, borrowers aim to instill confidence in lenders regarding their ability to meet mortgage obligations.

Statement of Business Activities

A crucial document that provides an extensive overview of the financial activities and profitability of a sole proprietor's business is the Statement of Business Activities. This statement serves as a vivid snapshot capturing the intricate web of income generation and expenditure management.

The Statement of Business Activities is typically filed with the general tax return document, and it offers detailed information about the income and expenses associated with running a business. This statement plays a significant role in verifying the income of a sole proprietor when applying for a mortgage in Kelowna or any other financial transaction requiring income verification. Lenders often request this document to assess the stability and viability of the business, ensuring that it generates sufficient income to meet mortgage obligations.

Furthermore, if there are outstanding taxes indicated on a recent Notice of Assessment, additional documentation may be required to prove that these taxes have been paid.

Financial Statements From an Accredited Accountant

Financial statements from an accredited accountant provide a comprehensive and visual representation of a partnership, limited, or incorporated company's financial activities, offering valuable insights into its profitability and stability. These statements are essential when applying for a mortgage in Kelowna.

They typically include the income statement, balance sheet, and cash flow statement. The income statement shows the company's revenue and expenses over a specific period, allowing lenders to assess its ability to generate consistent income.

The balance sheet provides an overview of the company's assets, liabilities, and shareholders' equity at a given point in time, enabling lenders to evaluate its financial position and solvency. Lastly, the cash flow statement demonstrates how the company generates and uses cash during a particular period, indicating its liquidity and ability to meet debt obligations.

By analyzing these financial statements prepared by an accredited accountant, lenders can make informed decisions regarding mortgage approvals for businesses in Kelowna.

Rental Lease Agreements

Rental lease agreements act as the foundation for assessing the potential income stream from rental properties, providing a blueprint that enables lenders to gauge the stability and viability of real estate investment opportunities. These documents play a crucial role in mortgage applications, allowing lenders to verify rental income and include it in the borrower's total income.

To ensure accuracy and transparency, it is essential to provide copies of lease agreements to lenders. In some cases, lenders may even request a report from a bank appraiser to determine fair rent for the property being rented out. By examining rental lease agreements, lenders can ascertain the reliability of rental income and make informed decisions regarding mortgage approvals. This helps borrowers who already own properties and intend to rent them out instead of selling before seeking additional financing.

Lease agreements serve as evidence of an existing rental arrangement. They outline important terms such as rent amount, payment schedule, and duration. These documents help assess the potential risks associated with renting out properties. Additionally, lease agreements enable lenders to calculate potential cash flow and evaluate investment opportunities more effectively.

Be Prepared for Your Mortgage Application

When applying for a mortgage in Kelowna, it is crucial to provide the necessary income verification documents. By having these documents ready, you can demonstrate your financial stability and increase your chances of obtaining a mortgage. Remember, don't put all your eggs in one basket—having multiple sources of income can help secure your dream home.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

Dave Kotler

Leave a Comment