What income can I use to qualify for a mortgage?
When looking at the weather forecast, we like to see a nice uniform set of forecasted temperatures for the week. It allows us to plan our outfits for the week and activities for the week because we can predict the weather to stay the same. When there is variability in the forecast- some days warm and some days rainy- it gets harder to plan. Our wardrobe is all over the place with shorts and a t-shirt one day and raincoat and boots the next. Planning activities and things to do can also become harder when the weather does not always cooperate.
When shopping for a mortgage, the ideal borrower would have a steady income. Lenders like to have a borrower that has a reliable source of income since it lowers the risk of variability. However, this is not always possible. Here we talk a bit more about what income you can use to qualify for a mortgage.
Canada Emergency Response Benefit (CERB)
Within the recent crisis across the world, many people have been left to file for unemployment. For some, they may have simply been furloughed. This is when the employee is given temporary leave from the employer. Usually due to changes in the economy and will return to work at a later time. Others may have been laid off, where the person is permanently let go from their job. To help provide support during this time, Canadians can apply for the CERB as a temporary source of income. This provides relief to those that have stopped working because of COVID-19.
Although, those that have applied for CERB may not be able to use this as a source of income when looking to apply for a mortgage. Lenders might not see the CERB as a reliable source of income, which means you are seen as a higher risk for a lender. Their income has more variability and the CERB is intended as a temporary source of income during a crisis.
Employment Insurance (EI)
Although CERB income may not be used to qualify for a mortgage, EI can be used in certain situations. If you receive EI payments regularly, it may be possible to use this as a source of income. Employment insurance is a government-run program to help support Canadians that have lost their job through no fault of their own. This is seen as a steady source of income to lenders when it can be confirmed to continue for an extended period of time. This may be used by employees like professional fishers that receive their income seasonally.
When applying for a mortgage using EI, borrowers will need to show proof of the income over the previous 3 or more years. Borrowers applying for a mortgage while on EI may find difficulty using a traditional lender. Traditional lenders put more of a focus on a borrower’s credit score and steady employment. Therefore, someone on EI may not fit. However, many alternate lenders work with borrowers that do not fit the typical mold for a mortgage.
Alternative lenders can be more specialized and work with a wider variety of borrowers. Alternative lenders have less rigid requirements that a borrower must meet to qualify for a loan. This allows borrowers that are using employment insurance to still possibly qualify for a mortgage.
The uncertainty of what the future holds can be stressful. The best we can do is continue to make an effort to stop the spread of the virus. Recent reports show that the efforts in some provinces are slowing the spread of COVID-19. This could lead to the slow reopening of the economy. None of the provinces have formally spoken about lifting restrictions. However, there has been talk about taking cautious steps in some provinces. When restrictions are slowly lifted, you can start to get back to work and receive steady income again.
The situation we are faced with is not something we could have expected. Qualifying for a mortgage during this time can seem tricky and almost impossible. There is more variability in income and uncertainty surrounding what the future holds. While Canada’s Emergency Response Benefit cannot be used as a source of income to help a borrower qualify for a loan, Employment Insurance can in some cases.
Talking to a mortgage broker to discuss your options for qualifying for a mortgage during this time will help find the right option given your unique financial situation. Protecting the future of your finances during this time can help create some uniformity and set you up for success in the long run. When interested in how you can qualify for a mortgage, give us a call at Centum Home Lenders! You can give us a call at 506-854-6847 or get in touch with us here!