Statistics reveal that up to 36% of Canadians have mortgages, indicating the significant role that mortgage institutions play in the lives of a broader population.
When applying for a mortgage, the lending institution will verify if you can repay the loan from your sources of income. Therefore, confirming employment becomes a crucial step in the mortgage application process. Mortgage lenders thoroughly examine employment information to assess borrowers’ creditworthiness and make informed lending decisions.
There are several steps involved in mortgage employment verification:
- Letter of Employment: Mortgage lenders require borrowers to provide a letter of employment. This letter serves as official documentation to verify the borrower’s employment status and income. It must include crucial details such as the borrower’s job title, start date, hours worked per week, and salary information. Lenders rely on this information to assess the borrower’s ability to repay the mortgage loan.
- Direct Communication with the Employer: In addition to the employment letter, lenders may contact the employer directly to verify employment details. This direct contact helps ensure the accuracy of the information the borrower provides. Lenders may inquire about the borrower’s employment stability, longevity, and probability of future employment.
- Pay Stubs: Lenders also request recent pay stubs from the borrower to validate employment and income. Pay stubs explicitly record the borrower’s earnings, deductions, and employment information. These documents offer evidence of the borrower’s financial situation and ability to make mortgage payments.
NOTE: Borrowers must be truthful and accurate when providing employment and income information to their mortgage lenders. Fabricating employment details or inflating income can lead to severe consequences, including loan rejection or legal repercussions.
When do Mortgage Lenders Verify Employment?
The lender will request proof of employment during the underwriting process, which takes place days or weeks before the closure of the mortgage. However, since mortgages can take a month or two to settle, the lender may do a second confirmation closer to the closing date to ensure that nothing has changed in the borrower’s employment situation.
What Happens When a Lender Is Unable to Confirm Your Employment?
The underwriting procedure can result in a loan being rejected, so you’ll want to take all necessary precautions to prevent that. If the lender cannot confirm your employment through the human resources division, it can result in the loan being rejected. Calling the department to clarify your circumstances is important in such a case. You can also ask the lender whether supporting documents such as tax returns and pay stubs would be acceptable as alternative proof of employment.
How Will My Job Loss or Job Change Affect My Mortgage Application?
If you leave your job while your mortgage is on the verge of approval, informing your lender as soon as possible is important. Being honest is crucial, as lenders are interested in discovering changes in your employment status. Losing your job can prevent your loan from moving forward, but by informing your lender, you can work together to devise a different strategy in the case of a job change.
Getting a Mortgage When Self-Employed
Mortgages for the self-employed are designed specifically for borrowers who get their income from their business or self-employment rather than a salaried job. To verify the employment status of a self-employed person, lenders typically use a combination of documents and verification methods. Here are some common ways lenders verify employment status:
- Income documents: Lenders may request income documents such as business financial statements, profit and loss statements, bank statements, or tax returns of at least two to three years. These documents provide evidence of income and help lenders assess the self-employed individual’s financial stability and ability to repay the loan.
- Business registration documents: Lenders may ask for business registration documents, such as articles of incorporation, business licenses, or registration certificates. These documents confirm the existence and legal status of the self-employed individual’s business.
- Industry-specific documentation: Lenders may request additional industry-specific documentation depending on the nature of the self-employed person’s business. For example, contractors or freelancers may be asked to provide contracts or invoices as proof of ongoing work and income.
- Bank statements: Lenders may review bank statements to verify regular cash flow and transactions related to the business for a minimum of two to three years. This helps lenders assess the viability and stability of the self-employed individual’s business.
- Credit checks: Lenders may also assess the borrower’s credit history and financial standing. This is a standard practice to evaluate the creditworthiness of any borrower, including self-employed individuals.
Depending on the lender, you could need to provide them with these documents:
- Personal and commercial credit ratings.
- Financial records for your company.
- Proof that your HST and/or GST payments have been fully made.
- Evidence of primary ownership in the company.
- Contracts that detail current and upcoming revenue possibilities or expectations.
- A copy of your business license, GST license, or articles of incorporation demonstrating your legal status.
The Bottom Line
Mortgage lenders verify employment through various steps, such as requesting a letter of employment, direct communication with the employer, and reviewing pay stubs. Borrowers must be honest and accurate with their employment and income information. Communication is key, especially when facing job loss or job change during the mortgage application process. Self-employed individuals have specific requirements, including a Notice of Assessment and additional documents related to their business. By following these guidelines and providing the necessary documentation, borrowers can ensure a smooth mortgage application process.