Professionals with complicated income

Why is the number so small when the income is so high?

Because most lender calculations were built around a salary, and yours is not a salary.

Dividends generally need two years. Partnership income needs financial statements. Bonuses get averaged. Stock usually needs history. Wherever the history is short, that piece of income counts as zero in the calculation. That is the form being narrow, not a judgment about what you earn.

Do dividends count as income?

Most lenders count them, generally over two years, and they differ on whether they use the amount before or after tax.

If the dividends come from your own corporation, expect to add T2 returns, financial statements and an accountant letter showing the company can keep paying them. If you switched from salary to dividends last year, that year reads as a gap — which is why I tell people not to change their compensation structure right before applying.

How do you document a partnership draw?

Generally with three things together: T5013 slips, your personal returns, and the partnership's financial statements.

The recurring problem for partners in law, dental and accounting firms is that the draw moves every year and there is a true-up at year end. Most lenders take an average and look at whether your ownership share is stable. If you just made partner and have only a few months of history, the file usually leans on your earlier employment income to bridge it.

Can a bonus, RSUs or options be used?

A bonus generally can, usually as a two-year average. Stock-based income varies enormously by lender.

The usual requirement is an employer letter stating whether it is a regular part of your compensation, backed by two years of T4s or tax records. Shares that have vested, been sold and landed in your account are far easier to use than paper that has not. One-time signing bonuses generally do not count.

What if the practice just opened, or you just bought in?

It can be done, but the order matters — whether you buy before or after you go out on your own can decide the answer.

While you are still drawing a salary somewhere, your income history is complete, and a lot of things are easier before you resign. Once you are out, the file leans on your practice agreement, your licence, your down payment and your credit. Some lenders have specific policies for certain licensed professions, under different names and terms, and I go looking based on your designation.

Does your professional line of credit count against you?

It can, and it is the single most overlooked item I see.

A 200,000 professional line of credit you have never touched — for illustration only — is still treated by some lenders as a monthly payment inside your debt ratios, while others count only the balance you actually owe. The two methods produce very different answers. Before applying, it is worth knowing what your total approved limits are, and reducing the room you do not use.

Should you buy in the corporation's name or your own?

For a home you live in, personal name is usually the answer, simply because far more lenders will do it.

Corporate ownership generally gets handled as commercial or alternative lending, with different terms and different costs. Whether it makes sense for tax is a question for your accountant. What I can tell you is what the financing looks like each way. Look at both before deciding.

Three things you can do this week

First, pull together the last two years of T1 returns and Notices of Assessment, plus T5 or T5013 slips. If you have a corporation, add the T2 returns and financial statements. Collect, do not organize. Reading it is my job.

Second, look up the approved limit on every line of credit and card in your name, not just the balance — that is the item above. Third, if you plan to change your compensation structure, resign, buy into a partnership or open a practice this year, ask me about the timing first. Getting the order right saves a lot of explaining later.

Common questions

You just moved here to practise and have no Canadian income history. Is that workable?

Generally there is a route. Most lenders will look at your licence, your employment or practice agreement, and your previous earnings. Down payment and credit carry more weight in this kind of file, and it depends on the file.

Does a high salary help if the job just started and you are still on probation?

Most lenders want probation finished, or at least continuous employment in the same field. Some accept a new role with a signed offer letter, depending on the industry and the position. The order of changing jobs and buying is worth one phone call.

Does a student-era professional loan still hurt?

It counts inside your debt ratios, but it is generally not a black mark. What matters is the monthly payment and how long is left. Sometimes stretching the amortization on it actually helps your borrowing room.

Your spouse has credit problems. Does that drag the file down?

If she is on the mortgage, most lenders read the whole file off the lower score. You can also apply on your own, at the cost of qualifying on one income. Run both before deciding.

Part of your income is in another currency. Can it be used?

Some lenders accept it, generally with a discount applied, and they look at whether it is stable and properly reported. It depends on the lender, so it has to be asked one at a time.

You plan to move up to a bigger house in two or three years. What should you do now?

Keep your compensation structure steady and do not change it in the middle year. Avoid taking on large new credit lines in the year before. Most lenders look at the last two years, so what you do now lands inside that window.