We have discussed qualifying for a mortgage under normal standards, but how does the qualification process work when our income is derived from an unusual source?

Mrs Y. is currently on a disability income of $25,000 per year.  She has been looking for a home for some time but realizes that without adequate mortgage money, her chances of finding a sound home are fruitless. A salaried position earning $40,000 a year gross, after deductions for CPP, income tax, pension contributions and the like, the take home pay may be around $25,000.  The lender will still qualify you on your gross income of $40,000.  In Mrs Y's case, she receives net disability benefits amounting to $25,000 per year, guaranteed for life, indexed to the Consumer Price Index, and most important, not taxable. There is an argument that both incomes are identical, but they will be treated differently  by just about every lending institution.

Taking into consideration identical costs for taxes and heat, the difference in qualifying standards are as follows:

a) maximum mortgage based on $40,000 gross income... $104,000
 b) maximum mortgage based on $25,000 net income..... $65,000

The solution lies in the interpretation of the income.  You need to find a lending officer that understands the above, and is willing to "gross up" the net income before doing debt service qualification, and approves the application prior to performing a credit check.  You want to make absolutely sure that the lender will not do a credit check until after the income circumstances have been dealt with.  Every time a credit check is done, it will show on the credit bureau.  If one lender happens to turn down the application, the next lender will start a credit check only to find that another lender has turned down the file.

Most lenders won't check as to why it was turned down, they will simply follow suite.   In any situation where there is a question mark as to an approval, you should make sure that the lender completes the application, including the approval, before the credit inquiry on the credit bureau system.

In our situation, Mrs Y. had applied to eight different lenders before finding her way to us.  She required $100,000 to purchase her dream home. Normally the approval process here is instantaneous but due to her trying to settle things herself, we had to overcome the eight inquiries on the credit bureau.  Her credit was good, but her net income got in the way.  All eight lenders told her she did not qualify. We simply followed our own advice in asking a loan officer from a trust company to approve the deal on its merits without doing a credit bureau search, until after he had the deal approved by regional office.  The deal took an eternity to get approved (four days), but it did get approved.  She moves into her house at the end of the month, and disabled or not, she is flying high.