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Qualifying income is the portion of a borrower’s income a lender counts when calculating GDS and TDS ratios. Stable, guaranteed income is generally counted in full, while variable income — bonuses, overtime, commissions, or self-employment earnings — is typically averaged or discounted rather than taken at face value.
Lenders want income they can rely on for the life of the mortgage, not just the borrower’s best year. Base salary and guaranteed hours are counted in full and documented with a letter of employment and pay stubs. Variable income — bonus, commission, overtime, or rental income — is usually averaged over a period of time, often using several years of tax documents, rather than counted at its most recent, possibly highest, level.
Self-employed borrowers document income through Notices of Assessment and often several years of financial statements, since business income can swing year to year and is generally averaged rather than taken from a single strong year. However it’s calculated, qualifying income feeds directly into GDS and TDS — a lower qualifying income means the ratios are tighter, even if the borrower’s actual take-home pay is higher.
Documented, not declared: lenders require a Notice of Assessment and letter of employment (or equivalent) rather than accepting a borrower’s stated income.
Variable income is discounted: bonus, commission, overtime, and self-employment income is typically averaged over multiple years rather than counted at face value — exact treatment varies by lender.
Feeds directly into the ratios: qualifying income is the denominator in both the GDS and TDS calculations, so how it’s calculated can be the difference between an approval and a decline.
Consistent across provinces: mortgage agents (Ontario), submortgage brokers (BC), mortgage associates (Alberta), and courtiers hypothécaires (Quebec) all gather the same core documents to establish qualifying income before submitting a file.
Definitions reflect Canadian federal and provincial rules as of the “Updated” date above. Not advice for any specific file.
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