Paperwork: What do I need to provide to a lender or bank?
This subject is a little more difficult to define as each lender may request a variety of different paperwork depending on the mortgage you are getting. I will review the basic paperwork and anything else a lender may ask for.
To be safe, I always suggest gathering as much paperwork as you can in case the lender asks for it. Below is a list of the basic paperwork you will require with most mortgage applications.
Income Confirmation: This section is very important and I devoted a whole chapter to it. So to summarize
1) You will need a job letter stating your position, salary and length of employment if you are an employee of a company.
2) You will need a copy of a recent pay stub that will confirm the information above.
3) It is always good to have your T4 slip from the previous 2 years available in case it is asked for. This proves two things, one you have been working two years and two the income you stated on the job letter is true.
4) The T4’s also help to prove a 2 year average income if you work in a job with overtime or bonuses, so have these available if you are in a position that pays extra money
5) If self-employed you will need your last 2 years T1 General tax returns from Revenue Canada.
6) If self-employed you will need your Revenue Canada Personal Notice of Assessments for the last two years to confirm the government accepts your income on the application.
7) If self-employed you may be required to provide a 2 year history of your business financials as well. It’s a good idea to have these on hand.
Down Payment Confirmation:
This is another area I went over in detail in a previous chapter. To summarize:
1) If the money is in a bank account you need the last 90 days of bank statements proving where is has been sitting and that it is your money. So you need at least one statement that has your name and account number on it to link the account to you.
2) If in Investments. You need your last 2 quarterly or last 3 monthly statements to prove it is your money. Your name and account number must be on at least one statement.
3) If from sale of assets you need a full paper trail of the sale and then proof the money is deposited into your account.
4) If a gift from a family member, we need to have a gift letter signed by all parties and proof the cash is in your account.
5) If borrowed, we need a statement proving the interest rate and minimum payment you must make to service the debt.
If the down payment comes from another source feel free to e-mail me to discuss the paperwork lenders will require at Daryl@maxmort.ca
Personal Identification:
Most lenders rely on lawyers to gather this but we suggest always collecting at least one to two pieces of ID for all mortgage applicants.
1) Driver’s license
2) Passport
3) Social Insurance Card
4) Government issued ID.
These are what we look for and they are acceptable to most lenders. If it has a picture it is a good ID.
A valid cheque from a bank account:
All lenders will require you to provide a cheque from an account they can withdraw your monthly payment from. You want to provide a copy of a VOID cheque.
A void cheque can do a few things for you.
1) Provides further ID proof
2) Connects you to your bank account
3) Saves the lawyer and lender having to get a copy at the last minute.
Proof of debts being paid:
Some lenders will require that you have some debts paid off in order to make the debt ratios work. If this is required on your approval or pre-approval you will need to provide proof of the original bill and amount owed. Then proof you have paid it off in full.
Usually this is a credit card or loan that must be paid down or completely off. We always suggest you send a copy of the last statement. Then proof you paid the bill on-line with an online statement.
Of course you will need to provide proof the online account is yours as well.
Separation or Divorce Paperwork:
Lenders must include alimony payments and child support payments in your debt calculations and debt servicing ratios.
If you are in a divorce or separation or have recently gone through one, you will be asked to prove you are owed or owe the alimony or child support payments.
It is very important to have a copy of these documents handy so you can support any claims you make on what you owe or what you are owed by your ex-spouse.
Do not expect the lender to just take your word for it. If you are in either of these situations or have recently gone through one on the last 5 years it is best to have copies of the agreements on hand.
It is important to make sure you have the signed versions on hand to confirm they are all legal and obligating to all parties.
You may be asked to provide 3 to 6 months bank statements that prove deposits from support or alimony payments.
Condominium Documents:
When you are buying a condo you will normally receive a binder with the by-laws, condo board meeting minutes, and the condo financials.
The lender wants to see these to confirm that the board has their finances in good shape. They want to see they have a reserve fund that will take care of future maintenance expenses.
The Reserve fund will predict future expenses and your condo fees will be used to help pay these future expenses.
On occasion there are special assessments made as an unexpected expense may come up. In this case, the board will assess a cost to each unit in the condo complex and each unit must come up with the extra cash to cover this cost.
These special assessments are normally uncovered by the lender by reviewing the condo documents and board meeting minutes.
If a special assessment is coming, you need to negotiate who will pay for this either you or the seller. Your realtor can be very helpful in these types of case.
There are companies that specialize in reviewing condominium documents. They go over all the by-laws and financials and then provide you with a written report as to what they have found. The cost is around $400 to $500 per report. It is an expense that is well worth the investment as it can uncover some expenses you did not anticipate.
Other property information:
If you own other properties you will need to declare these on your application. The lender will then ask for a copy of the property title to confirm you own it and how much may still owe on it.
They will ask for a recent mortgage statement to confirm the current mortgage and payments along with the interest rate.
If the house is free of debt they will require a copy of the title to confirm this.
If you own other property they will want to debt service any payment. Such as the mortgage, property taxes, condo fees and your monthly heating cost.
If you have the property rented out they will want to see a copy of a valid lease or tenant agreement that proves the rent you charge.
All of these expenses are taken into account on a new application.
If you are renting a property you own most lenders will allow you to use 50% of the income for your next purchase when qualifying. Each lender has specific policies and conditions for revenue properties. It is best to confirm with the lender.
If you own multiple properties, you really should not be reading this book now should you. Should this be the case, you will need to declare each property and provide the same information on each one.
Appraisals:
In some cases you will have to arrange to have an appraisal done on the property to prove its value. This is normally arranged by the lender or mortgage broker.
You will be required to pay for the appraisal and the normal cost (at the time of this writing) is about $350 to $450.
The appraisal must be ordered through an appraiser that the lender approves. This is why the mortgage broker or lender usually orders it.
Never order one yourself unless you have the lenders permission to do so. You may end up paying for two appraisals if you do this.
Home Inspections:
Lenders do not normally require these reports. They are done mainly for your benefit. I will go into more detail in a chapter later in the book.
We have had to supply a copy of a home inspections when a price reduction is made due to a problem or issue uncovered due to the inspection.
The lender wants to know the details of the issue and the inspection normal points this out.
These are the main documents lenders will request but as I mentioned each lender can make further requests for documents depending on the deal you make.
Having the paperwork all ready and set aside will make the whole process easier for you and the lender and your mortgage broker. Take the time to prepare your paperwork and review it with your lender or mortgage broker, you will be glad you did.
“A real estate purchase is very stressful and the more you have done to prepare for it the less stress you will experience. Trust me, I know this from experience, take the time to get all your paperwork in order you will be glad you did.”