Decline Reason #1: Not enough income

Click Here to expand on Decline Reason #1

Decline Reason #2: Ineligible Qualifying Income

This is a frustrating one that many applicants have a tough time wrapping their heads around.  Some of the more common income types that tend to derail qualifications are self employment, part-time employment and 100% commission incomes.  It’s not that the type of income is restricted, but more so an issue of the length of time it was enacted.  For example, self employed income is totally acceptable, but only if you have a minimum established tenure of 2 years (and the same goes for 100% commission income types).  Here are some tips on how to overcome ineligible income types:

• Get a Co-Signer!  Perhaps you are in the first year of your new business or you have just taken on a lucrative commission payment structure, both of which may be trending in the right direction.  However, as you only have one year under your belt, your income is deemed ineligible.  The absolute minimum tenure for self employment, part-time, and 100% commission income is 2 years. As I mentioned in the prior blog (Decline Reason #1), you will likely require a co-signer if you are in this category. And if that’s the case, be aware that if all goes well and you carry on your job as per plan, you will hopefully graduate to independence once you accumulate your two years, thus making your income eligible! At this time you can then challenge the lender and provide income documents to verify that you can now service the mortgage based on your own merit (at which time you can then set free the co-signer!). Click Here to read more about the terms and conditions of being a co-signor.
• There are always exceptions to the rule!  The 2 year minimum is pretty much a hard rule, except for the following scenarios: 
  • Part-time income can be used if it is classified as Regular Part-Time.  This means that although your hours do not equate to a standard 40 hour cycle, a Regular Part Time status ensures that you earn a regular and consistent income which is looked upon more favourably by lenders.
  • Salary Component Commission incomes that feature a fixed salary component are regularly accepted by lenders, but the commission component is only factored in if there is a 2 year record of earned commissions, in which case a two year average would be used for qualification purposes. If you haven’t quite accumulated 2 years worth of commission earnings, you can certainly use the eligible base salary component of your income (if you have one).
  • Newly established self-employed applicants can also fall in the exception category, but only if they have transitioned to a business very similar (or related) to the employment they departed from.  For example, many engineers from Calgary’s oil and gas sector often switch from being payroll employees to self-employed contractors without even leaving their workplace (and vice versa).  Another recent file I worked on involved a massage therapist who recently transitioned from being a payroll employee and seamlessly changed to a self contracted therapist with a bulk of his patient list remaining intact while he also pursued other new patients and referral sources.  Instances like these are acceptable by lenders as they are regarded as low-risk employment transitions.

• Check in next week for Decline Reason #3: You have credit issues