Updated: Using Disability Income to Qualify for a Canadian Mortgage: 2024

NOTE: this post has been updated in August 2024.

CAN DISABILITY INCOME BE USED TO QUALIFY FOR A CANADIAN MORTGAGE?

YES, it is possible to use disability income to qualify for a pre-approval or a full mortgage approval.

IMPORTANT:

We are ONLY able to use disability income AS A “TOP UP” WHEN YOU ARE BUYING WITH ANOTHER PERSON

• who has standard/ T4 employment income OR qualifies as SELF-EMPLOYED
• AND your file needs more income to “top-up” the qualification amount to get to your target mortgage amount.

Unfortunately, we are not able to use:

• Disability income where it is more than 50% of the income needed to qualify for the mortgage.
• AISH income – the lenders deem provincial supplements as to “risky” and only use “federal programs.”
• If either of these are your situation, we recommend going to an ATB Branch, not online but a BRANCH.

Below are a few clarifications on the typical disability incomes that the banks can use.

• Not all banks accept all types of disability income so we use a few different lenders to ensure we have all your bases covered.

 NEXT STEP

Call or send me an email with your contact data so we can have a chat on the phone if you are needing to use a “TOP-UP” via disability income for your purchase.

• I answer from 9-9 x 363, am in the office from 10 – 6:30 most days, best time to call is between 11 am – 3 pm.
• No need to pre-book, just call!
• (How different is that?)

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Long-term & Short-term Disability Pension/Insurance

If the borrower has a non-taxable income, the Bank, CMHC and Sagen allow the income to be grossed-up.

• Less than $30,000, this income may be increased by 25%
• At least $30,000, this income may be increased by 35%

Long-term disability: 100% of long-term disability income can be used.

Provide one of the following:

• Letter from the organization or from QPP confirming long-term or permanent disability. If the letter is outdated (over 120 days), current bank statements confirming the deposits are being made to the borrower’s account are also needed
• T4A(P) confirming disability income.

Short-term disability: 100% of the employment income can be used for short-term disability.

Provide the following:

• A letter from the employer confirming the borrower’s return date, position and salary with a verbal confirmation from the employer to ensure the date on the letter is correct. If the return date cannot be confirmed, the disability income can be used for qualifications.

Pension & Retirement Income/Life Annuity

Retirement pensions are fixed incomes, CPP (Canada Pension Plan), OAS (Old Age Security), GIS (Guaranteed Income Supplement), provincial pension plans and private/corporate pensions and must be Canadian pension and evident on Canadian tax return.

IF you are Splitting Retirement Income: In the case where the pension income is shared for tax purposes, the transferring spouse/common-law partner must be on file and only the amount that has not been transferred/split is admissible.

Provide the most recent two documents of the following depending on the source of the declared retirement income:

• Most recent NOA supported by T1 General
• RL-2 Slip
• T4A, T4A(P)
• Letter from the initiating party confirming the yearly pension amount
• Letter from the organization confirming income and permanency of income
• Copy of current bank statement showing the automatic deposit
• Copy of current monthly cheque stub

For CPP, OAS, QPP and GIS, only one relevant document for each source is required from the list above.

 

RRIF

Income from a RRIF is admissible if there is proof that the portfolio generates a sustainable income amount for the length of the term.

This is a tough one to nail down as the portfolio has to be sustainable and not “drained” over the term of the loan, as in, there will still be a substantial balance in 5 years, if the mortgage is a 5-year term.

Provide the following:

• The most recent NOA supported by T1 General
• Recent RRIF statement to show that the borrower has sufficient assets to support the indicated income for the length of the term

First Nations

This is a non-taxable income. The income can be grossed-up as follows:

• Less than $30,000, this income may be increased by 25%
• At least $30,000, this income may be increased by 35%

Provide the following:

• Copy of the status card needed.

“We use disability income all the time in our practice to top-up mortgage amounts and have access to the banks and lenders that allow it’s use.

Mortgage Mark Herman, top Calgary Alberta and BC mortgage broker, for 21 years.