Two years, one average

The first lender the file went to runs a straightforward policy for self-employed commission income when the two most recent years diverge sharply: use the most recent year only, on the theory that it is the better predictor of what the borrower earns going forward. That policy is common and defensible — and on this file, in a year the wider market cooled, it very nearly killed the deal.

Nothing about the borrower’s file was thin or undocumented — two full years of T1s, NOAs, and a brokerage statement of commission earned were all on the table. The problem was entirely the averaging rule, the same tension covered in how lenders actually average commission income: a single soft year, even inside a normal seasonal swing, can override a much stronger prior year if the lender’s policy says so.

At 10% down this is an insured file, so CMHC’s maximums — GDS 39%, TDS 44% — are hard limits, not lender preferences.

The minimum down payment at this price is 5% of the first $500,000 plus 10% of the remainder — $37,000 here — because the price sits above the $500,000 tier boundary; the client’s $62,000 clears that minimum comfortably.

GDS — the same under either income treatment

TDS — where the two policies part ways

Adding the 410/mo car lease to the same housing costs is where the two income treatments actually decide the file.

The FSRA-licensed mortgage agent working the file did two things, in order.

First, confirmed the shape of the decline. A 36-point swing between two commission years is exactly the pattern covered in a self-employed borrower on a two-year average, start to funded — not every softer year needs to be treated as the new normal, and the file’s brokerage-issued commission statement showed active listings already back near the year-one pace.

Second, moved the file to a lender whose self-employed policy defaults to a straight two-year average rather than a most-recent-year-only test, submitting both years’ T1s, NOAs, and the brokerage statement together so the underwriter saw the full picture at once, not a single soft data point in isolation.

Approved and funded insured at 90% LTV on a 5-year fixed term, 25-year amortization. The add-back conventions that complicate rental files don’t apply here — this file lived or died entirely on which two numbers got averaged into one.

• 01A self-employed averaging policy is a lender choice, not a regulatory rule. The identical two years of T1s produced a decline at one lender and an approval at another — know which policy you’re walking into before you submit.
• 02A soft year is not automatically the new baseline. Corroborating evidence — a brokerage statement, a pipeline of active listings — can support treating a downturn as temporary rather than structural.
• 03The ratios run at the qualifying rate, not the contract rate. This file qualifies at 6.89% and pays at 4.89% — a gap that matters for the ratio math even though it never appears on the client’s payment statement.
• 04Two different professional licences, two different regulators. A RECO-licensed real estate agent and an FSRA-licensed mortgage agent are never the same role, even on a file where both happen to be the same transaction’s two professionals.
• 05Budget the closing cash, not just the down payment. Toronto’s doubled land transfer tax plus the RST on the premium added $19,134 in cash before legal fees.