11 May, 2022
mortgage for commission based income in canada

If you are interested in learning how to get a mortgage for commission-based income in Canada, this article is for you. We’ll discuss all the ins and outs of commission income mortgages below, so that if you’re serious about buying a home in the next few years, you can start planning now.

Are you part of the 5% of the population working for a commission-based income? Are you afraid this will give you a hard time qualifying for the mortgage you want? It shouldn’t be the case!

But since most lenders might see commission-based borrowers as a riskier investment than other types of self-employed business income, there are a few things to consider when applying for a mortgage like this in Canada.

First, and most importantly, some lenders might not accept commission income as a qualifying criteria. This is why you’ll need to do a bit of research and find the right lender for your specific income type. 

Don’t underestimate the importance of documentation. Keep all your T4As along with your employer’s commission reports generated in the past two years under lock and key. It is essential to easily distinguish between gross and net commission amounts. 

Nontraditional lenders that will accept your business constitute what is called niche lenders. Many will accept up to 100% of your commission income and may even find solutions for borrowers with a low credit score. 

Income Qualification 

If you live in Canada, a key factor when applying for a mortgage for commission-based income is actually….income qualification. This is why it’s crucial to understand how lenders calculate your income. 

Self-employed individuals, real estate agents, insurance brokers, and professional gamblers are some of the most common types of taxpayers that base their income almost exclusively on commission. In the absence of a steady, standardized cash flow, calculating your revenue is a little more complex. But that doesn’t prevent you from qualifying for a mortgage. 

So what do lenders look for when calculating commission-based revenue? The quick answer is consistency and sustainability

Basically, they want to make sure you are capable of repaying your home loan in the long run. 

The documents you bring in will determine your average income throughout a two-year period, giving the lender a fair idea of the type of mortgage you can handle without falling into debt. Your current income level primarily proves you will be able to pay off your future mortgage payments. Of course, an inconsistent or declining commission income may hamper your mortgage and refinance efforts. 

Your past two-year income history will allow the lender to generate an average when calculating your debt ratio, maximum loan amount, and a monthly payment plan. 

Documentation Requirements For Commission-Based Categories

In general, in Canada, the same rules and guidelines apply for both self-employed and commission-based income mortgages. As discussed, you will have to provide documentation to prove a steady flux of income for the past two years. 

Standard documents to get approved for a mortgage with commission income include:

  • Tax Returns for the past two years
  • T1 Generals With Financials or T4s
  • Notice of Assessment
  • Most recent paycheck stubs (usually up to 30 days)
  • Most recent commission checks (usually up to 30 years)

Salaried job

  • Letter of employment which outlines at minimum the following: your job title, time on job, your pay (salaried or guaranteed hours plus hourly rate). The letter should be signed by Human Resources or your direct boss, dated, and on company letterhead. Make sure the signer of the letter has included their contact information.
  •  Recent pay stub in the last 30 days.
  •  If commission, bonus, or overtime income is needed for qualification, then please supply 2015 and 2016 T4s.

Self Employed – Sole Proprietor

  • 2017and 2018 T1 General Tax Returns. All the pages of the return must be provided, including the Statement of Business Activities for the same years.
  • 2017 and 2018 Canada Revenue Agency Personal Notice of Assessments to confirm the income filed with the government and the income taxes are paid up to date.

Self Employed – Incorporated Business

  • Most recent 2 years of company financials.
  • 2017and 2018 T1 General Tax Returns. All the pages of the return must be supplied.
  • 2017 and 2018 Canada Revenue Agency Personal Notice of Assessments to confirm the income filed with the government and the income taxes are paid up to date.

What must result from this documentation is that the past two years represent a constant revenue stream and that income hasn’t been declining. 

What Type Of Mortgages Do Commission Earners Qualify For?

family getting a commission income mortgage

There are two types of mortgages for commission-based income earners in Canada: Fixed Rate Mortgages and Variable Rate Mortgages.

The majority of mortgage lenders will allow you to take out a fixed-rate mortgage as long as your income is steady and consistent. The reason being is that the rate is set for a specific period. This means that you know exactly what your monthly payment will be each month until the end of the term. 

The advantage of these mortgages is that they are easy to budget for and manage. Fixed-rate mortgages are good if you have an idea of when you would like to pay off your mortgage or if you want to hedge against interest rates going up in the future. 

Variable Rate Mortgages Are Great For Commission Earners Too!

Variable rate mortgages are also available for commission-based income earners in Canada, but there are some additional criteria which must be met to qualify. 

For borrowers who cannot prove their income, most lenders will require a higher down payment on variable rate products, often 20% or more. Clients that can prove their commission based income, can find lenders who will approve their loan with 5% down.

Variable rate mortgages are ideal for commission earners because the interest rate can be adjusted based on the current market conditions. As a commission earner, your income fluctuates from month to month and year to year.

If you are expecting a big year or are just starting out and don’t know what type of income you’ll have in the future, a variable rate mortgage might not be right for you. Fixed rate mortgages are better as they get you a steady payment.

Other Factors To Consider

In short, CBI (Commission-based income) can bring you the mortgage you hope for with just a few extra verification steps. A strong financial history and a consistent two-year commission-based income are your tickets toward mortgage approval. Other factors your loan officer will consider, include: 

  • Credit score
  • Credit history
  • DTI (Debt to income ratio) 
  • Down Payment
  • Bank Statements. 
  • The value and condition of the home.

How a Mortgage Broker Can Help 

If you are a Canadian citizen or resident looking for a mortgage for commission-based income, consult with several lenders before acquiring the home of your dreams. But if you need help with the mortgage qualification process, a mortgage broker might be your best bet!

A mortgage broker can help you find the product that best fits your needs, whether that’s a fixed or variable rate product. They can also help you decide if it’s a good time to buy or sell your home and will ask you about your goals and risk tolerance to help find the best fit for you.

Your mortgage broker can also help you find the lender who will give you the best deal based on your income and credit history, prepare the mortgage application, facilitate the closing process, and make sure everything is in order.

So if you are part of the 5% of the population working on commission, don’t let the mortgage process scare you off! Not all brokers are the same, and not all of them will work with you if you are commission-based. Find one you can trust and who can help you find a lender who’ll work with you and your specific situation.

If you have more questions regarding the mortgages for commission-based income in Canada, getting a home equity loan, or any other type of alternative lending, don’t hesitate to get in touch. I’m here to answer all your questions and help you land the loan you are looking for. Getting your mortgage approval and homeownership might be just around the corner!

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