Bonus, Overtime and Commission Income

A $90,000 salary can usually be verified as a current annual amount. A borrower who earned $90,000 because of overtime, commission or bonus needs a second question answered: how much of that is likely to recur?

That is why lenders commonly compare historical tax/payroll income with the current year rather than simply annualizing the latest cheque.

In HopeWell's A-lender files, a two-year history is the common starting point for fluctuating income. A simple average of $90,000 and $110,000 is $100,000, but the direction of travel matters.

If the most recent year falls sharply, the lender may use the lower figure or ask why the decline occurred. If the income is rising and the current year supports it, the two-year average is generally easier to defend.

Historical averages tell the lender what happened. Current year-to-date pay helps show what is happening now. A borrower whose old two-year average is $120,000 but who is on pace for $80,000 this year may not qualify on $120,000 without a credible explanation.

The reverse can also happen: a borrower with a strong current year but limited history may need a lender/program capable of giving more weight to current earnings.

If a salesperson has a $60,000 fixed base salary plus commission, the lender can often analyze the $60,000 base under the fixed-income method and the commission under the historical variable-income method. Combining everything into one opaque number can make the file harder to understand.

This separation is especially useful when commission history is shorter than the underlying employment history.

A-lender qualification generally emphasizes verified historical income. B lenders can sometimes make sense of a strong current earning pattern using different documentation and a more flexible risk framework, but the trade-off is usually higher pricing and fees.

The Brantford YTD-income purchase is a good example: current earnings mattered because the standard historic-income path did not capture the borrower's present position well enough.

Do not average the household total without understanding where it came from. One job may be fixed and the other variable; one may have a long history and the other may be new.

The Pickering case shows why separating sources can produce a cleaner qualification analysis.

Typical evidence includes current job letter/paystub plus T4s, NOAs and sometimes additional payroll history. Commissioned borrowers may need more detail if tax deductions, reimbursed expenses or business-like costs affect the income picture.

Run the Maximum Mortgage Calculator using the preferred accepted income and again using a lower conservative figure. If a small income reduction destroys qualification, the file has little income cushion even before interest-rate risk is considered.

A commissioned employee can have a fixed employer and still have income that behaves economically like business income. Historical T4 income may include commissions before the borrower incurs employment expenses; some lender/programs may ask for tax documents that reveal those expenses or otherwise use a specific net/gross methodology.

The important point is not to assume that every dollar appearing on a commission statement is qualifying gross income. Determine the employer/payroll structure, historical taxable income, recurring employment expenses if relevant, and the lender's actual method.

After calculating the lender-acceptable amount, reduce it by 10% and rerun the mortgage. If the file immediately falls outside the required ratios, the borrower is qualifying close to the edge of an income stream that is inherently less predictable.

That does not mean the mortgage is unsuitable, but it changes the conversation. The household may want a smaller mortgage, more liquid savings, fewer other debts or a product with more payment flexibility. A lender's historical average answers a credit question; the buffer test answers a resilience question.

A first-time buyer can qualify with variable income when the chosen lender accepts a documented, sustainable amount. The buyer does not need a previous mortgage to establish an earnings history. Overtime, bonuses, commissions and fluctuating hours should be analyzed separately from guaranteed base pay; a first-time-buyer benefit does not turn uncertain earnings into guaranteed income.

Overtime depends on hours remaining available, not merely a high hourly rate. A bonus may be recurring, discretionary or a one-off award. Commission may depend on completed sales, a changing compensation plan and unreimbursed costs. Those differences explain why two buyers with the same total T4 income can have different accepted income.

Illustration, not a lender rule: guaranteed base salary is $68,000; variable earnings were $8,000 and $20,000 in the last two years. If the lender accepts the $14,000 average and current payroll supports it, the planning income is $82,000. Annualizing a strong recent month to $30,000 of variable pay would instead produce $98,000. The $16,000 difference is a documentation and sustainability question before it is an affordability calculation.

Run the Maximum Mortgage Calculator with the accepted base-plus-variable amount, then with base pay alone. If the purchase works only with every dollar of variable pay, preserve a financing condition until the lender and, where relevant, insurer have accepted that income. A lower target price or more verified cash may be more workable than selecting expensive financing merely to preserve the original budget.

A promotion into commission-only work can increase expected earnings while weakening the evidence available today. Keep the old and new compensation agreements, employer confirmation of the effective date, current paystubs and historical tax records together. See Employment Income for raises and income drops, and the first-home planning guide for cash-to-close decisions.

A homeowner can sometimes refinance using overtime, bonuses, commissions or variable hours when the selected lender accepts a sustainable, documented amount. Paying the existing mortgage on time is relevant conduct, but does not establish the earnings available for a larger mortgage today. OSFI’s B-20 guidance applies income and borrower documentation to subsequent refinances at federally regulated institutions; its normalization principle is not a universal two-year formula for every lender.

Keep base pay, each variable component and any compensation-plan change separate. Obtain historical payroll or tax evidence, current year-to-date earnings and current employment terms. Recurring overtime that has stopped, a discretionary bonus that will not repeat, and commission earned under a previous role all need a current explanation. Compare a base-only plan with a plan using only the variable amount the lender accepts.

Illustration, not a prescribed lender method: base salary is $72,000 and recent annual variable pay was $18,000 and $24,000. Assume the lender accepts only $18,000 after reviewing the current trend. Accepted annual income is $90,000, rather than $96,000 based on the strongest year. With assumed counted monthly obligations of $3,600, TDS is 48% using $7,500 monthly income, compared with 45% using $8,000. Base-only income of $6,000 produces 60%. These figures diagnose reliance on extra pay; they do not establish a lender’s allowed ratio or an approval.

If the refinance depends on card repayments, the counted obligations must also reflect the lender’s accepted payout conditions. Reducing the payment by extending amortization does not repair unsupported income. Run the stress-test calculator with accepted income, then assess costs and net proceeds in the refinancing guide.

A move-up purchase or refinance can use overtime, bonus or commission when the chosen product accepts a sustainable amount supported by history and current evidence. The old lender’s previous income calculation does not establish the amount for a larger purchase, an equity refinance or a new lender.

Separate two assessments: the gross income accepted for the permanent mortgage, and the after-tax cash arriving while both homes are carried. A recurring bonus can be relevant to qualification while being unavailable on a particular payment date. A projected commission also cannot pay the purchase deposit before it is earned, received and verified.

If an equity loan supplies the new contribution, show its payment to the purchase lender and recalculate using the same current income evidence. Otherwise the refinance can solve a cash amount while breaking the next mortgage’s ratios. The move-up TDS example and Mississauga two-property case show that interaction.

A lender change should address a documented evidence or policy difference. If the budget needs every uncertain commission and an immediate sale, reducing the purchase or changing the sequence may be stronger than paying for temporary financing. Use the bridge guide to test payment dates and liquidity separately.

A move-up homeowner may renew or switch while earning variable pay, overtime, bonus or commission, but keeping an offered current-lender renewal and qualifying with another lender remain separate decisions. Where income is reviewed, disclose each component and obtain the selected product’s accepted amount. The amount used years ago is not a current finding.

For the household budget, assign each receipt to its actual payment date. Illustration: assume $5,200 monthly take-home base pay, $5,800 monthly household outgoings including the proposed renewed mortgage, and an uncertain $12,000 net annual bonus. Averaging the bonus over twelve months makes apparent monthly income $6,200 and a $400 surplus. Before the bonus is paid, base cash instead has a $600 deficit; six months needs $3,600 available reserve, without double counting the bonus as cash already held.

This cash example is not a lender’s gross qualifying-income method. Document historical receipts, current compensation terms and any changed hours, commission plan or employer. Test reduced variable receipts as well as the expected amount. A reserve can bridge a timing gap but does not turn a continuing annual deficit into sustainable income.

A switching lender’s acceptance of one component does not imply acceptance of all variable pay. Link the evidence to current income changes, the renewal budget and any separate purchase assessment. Use the renewal calculator for mortgage payment assumptions before adding living and overlap costs.