John, a self-employed carpenter, applied for a mortgage. His stated gross income on his T1 General for the past two years was $70,000 and $75,000 respectively, with business expenses of $20,000 and $22,000. His lender typically averages the last two years of net income. What gross income will the lender likely use for his mortgage qualification?

Question: John, a self-employed carpenter, applied for a mortgage. His stated gross income on his T1 General for the past two years was $70,000 and $75,000 respectively, with business expenses of $20,000 and $22,000. His lender typically averages the last two years of net income. What gross income will the lender likely use for his mortgage qualification?

Answer options:

• $72,500 ✅ $51,500
• $53,000
• $70,000

Correct answer: $51,500

Explanation: Lenders typically use net income for self-employed individuals. Net income for year 1: $70,000 - $20,000 = $50,000. Net income for year 2: $75,000 - $22,000 = $53,000. Average net income = ($50,000 + $53,000) / 2 = $51,500.