Each mortgage is different, and each lender has different requirements - but there are a few things that are always needed.
If you want to apply for a mortgage - and that can be for a multitude of reasons - one of the questions you’ll probably ask yourself is ‘what do I need to do this?’ And if you’ve never applied for a mortgage before, this can be a confusing and frustrating process. There is an easy answer: find a mortgage broker to work with, like a member of the Essential Mortgage team. They’ll give you a list of documents that you need to provide them so they can submit them to a lender that gets you the best rate possible. However, if you don’t want to work with a broker, or you aren’t quite ready to apply for financing but you want to know what you’ll need when the time comes, you will need the following: income tax documents, your recurring monthly housing expenses, a statement of your assets and liabilities, a letter of employment, a 90 day history of the account from which your down payment is coming from, and photo ID. These are not all the documents you’ll need to apply for a mortgage, but they are needed for almost every consumer mortgage.
If you want to know the reason for requiring these documents, keep reading! This is a bit of a long list, so we’ll go through it item by item. Firstly is two years of financial documents: T1s, T4s, Notices of Assessment and so on. These are critically important for any pursuit for financing, as the lender needs to know what your income is - and whether or not your taxes are paid - before they can decide whether or not they think you can afford a loan. If you’re self-employed, the lender will also need two years of financial statements from your business to prove your income. Next you will need to calculate your recurring monthly housing expenses - if you’re pursuing financing for a purchase these will be the expected costs of the new property - such as utilities, taxes, and strata fees. This is then measured against your income to determine your ‘gross debt service’, or ‘GDS’; this is the percentage of your income going to your housing expenses, and most lenders want to see 32% or less. After all of that has been calculated, you will need to give a statement of your assets and liabilities. Liabilities are any outstanding debts or financing you already have: an existing mortgage, car loan, line of credit, or credit card, and so forth. Your assets are any properties you have in your name, any vehicles or other significant pieces of personal property, and your savings. A lender needs to know this information so they can determine what is called your ‘total debt service’, or ‘TDS’ - essentially they take your ‘gross debt service’ and add the monthly expenses from your liabilities. Generally lenders don’t want to see your ‘total debt service’ amounting to more than 42% of your income. One thing to keep in mind for your gross debt service and total debt service is that the 32% and 42% are just industry standards, and in the event you have a high credit score and good credit history, a lender can decide to allow for higher ratios. Additionally, a mortgage broker can persuade a lender to make an exception to the GDS and TDS standards in specific circumstances, which is just another reason to work with a mortgage broker.
With income out of the way, the next thing a broker will need from you is a recent letter of employment. They need this so that they can prove that you work where you say you do, and so that your employer can confirm your salary. If you have recently changed careers since you last filed an income tax return, this is especially critical, as if you are making more money than you did at your previous job that can allow you to qualify for a larger loan, or a lower interest rate. Usually a lender will require that you obtain a new letter of employment when pursuing a new loan, but it can be helpful to have one on hand when starting the application to answer some early questions of the lender. Next, assuming that you are purchasing a property, the lender will need 90 days of bank statements showing the money in your account that you are using for the down payment. These statements need to show a few things: the balance in the account, the account number, and your name; this last one is to confirm that the statements are in fact from an account you own. The reasoning for this is to combat money laundering, and as such all financial institutions must abide by it. Lastly, a broker will need a photocopy - or picture, or scan - of one piece of government issued photo identification, such as a driver’s license, permanent resident card, or passport, to ensure that you are who you say you are. This last requirement might seem unnecessary, but the reasoning is that by requiring verification of your identity, it will prevent identity theft from taking place in the mortgage industry. After all, a mortgage loan often amounts to hundreds of thousands of dollars, and nobody wants to find themselves in a situation where their identity has been stolen, and the identity thief has managed to leverage a loan of that size in their name.
There are too many possible documents to list that can be part of getting you a mortgage, and some documents need to be recent, or are only obtainable when you’re actually looking for a mortgage. However, being aware of these can only beneficial to you as a consumer. Some other documents you may need when you are actually pursuing mortgage financing for a purchase are the contract of purchase and sale, and almost always an appraisal.The contract of and sale is needed by the lender to ensure that a property is being legally purchased, and as a legally binding document the contract ensures that the seller of the property does not back out at the last moment. The contract of purchase and sale will also include the closing date of the purchase, which gives you a deadline for when the mortgage is needed. An appraisal is required so that the lender knows that they aren’t giving a loan for more than the property is worth. This is exceptionally important not only for the lender, but also the you, the borrower. It ensures that you don’t end up owing more than the asset itself is worth, which is a far from ideal situation to say the least.
Whether you’re shopping around for a mortgage, or simply want to know what kind of documents you can have on hand for when the time to apply for financing comes, it can always be helpful to work with an experienced mortgage broker. Applying for a mortgage is a complex process, and as we’ve written previously, an experienced broker can help you navigate it. This is why the Essential Mortgage team prides itself on its client communication and ability to close mortgages quickly and efficiently. Our experience, your best interest!
All offers mentioned previously are available subject to change and OAC.