Definition of a Pay Stub
A Pay Stub is a document received by an employee that provides detailed employment income particulars for a specific period of time called a pay period.
As it relates to the mortgage process, the pay stub along with a job letter helps qualify income for an individual employed at a company.
An acceptable pay stub will have the following characteristics:
- Issued by a payroll department or firm
- Clearly identify the employee's name
- Outline the current pay period in form of a date range
- Outline the current rate of pay for the employee
- Indicate the total amount of pay for that pay period
- Indicate deductions for that pay period
- The amount earned Year to Date (YTD)
- Indicate total amount deposited to the bank account or attached cheque
As each employer is different and each company handles payroll differently, pay periods can range from weekly to monthly. Rarely employees go longer than a month between pay periods, that is typically more of a contract arrangement.
Why the YTD is so important
When a lender is trying to substantiate income through appropriate verification of documentation, the job letter and pay stub are the starting place in most cases. The job letter outlines annual salary, where the pay stub confirms that to be true. Let's say a job letter comes in and says that an employee makes $120k annually, however their pay stub shows that they have only been receiving $8k per month, more documentation may be required as the numbers don't line up.
A lot of times an employment letter will outline a salary that includes bonuses, however forget to mention that on the letter itself. This is where cross-checking the pay stub with the employment letter makes a lot of sense. In the case that bonus income is being used, that will have to be substantiated on a 2 year average through T4 Slips.
If you would like to know more about what it takes to qualify for a mortgage or mortgage documentation like a pay stub, please contact us anytime!