What We Need & Why We Need It
Whether you are purchasing a new home or refinancing your current home there are a number of mortgage documents we require in order to complete the financing. To help simplify the process we want to explain what we need and why.
One of the big things you might notice in the following list is the redundancy of multiple documents that all seem to say the same thing. The reason for this is that, sadly, mortgage fraud is still a large problem in Canada so we (and the mortgage lenders) need to do our due diligence to help prevent it.
Identification (i.e., Driver’s licence or passport; note: Health cards are not considered valid photo id)
WHY: We need to prove you are who you say you are. In certain cases where the address you have given doesn’t match your credit bureau we might also require a utility bill or credit card bill that shows you live at the specified address.
WHY: We need to know where you would like your mortgage payments to come from. If you don’t have cheques you can ask your bank for a pre-authorized payment form. Make sure to have your bank stamp it and don’t forget to sign your name on it.
WHY: We need to know where the lender should be sending the mortgage instructions.
As a side note: Many lenders will not send your mortgage instructions until we have completed everything on our end. Make sure to send in all your documents early that way we can make sure everything has been finished and your lawyer can be instructed in a timely manner.
Offer of Purchase and Sale AND MLS Listing (Realtors’ version with seller’s names, property taxes and length of time on the market)
WHY: With the MLS listing we can cross reference it to the OPS to make sure they are legitimate.
Purchase and Sale Agreement: We need the ENTIRE offer including waivers, amendments, notices of fulfillment and confirmation of representation. If you are purchasing a new build – YES we will need the entire 150 pages of the agreement and every change, amendment or addition you have made and the Tarion Warranty.
Proof of Employment
WHY: We will need to show you can afford the home you are looking to purchase or refinance.
For Guaranteed Salaried Employment
If you have been at your job for over 1 year, are full-time with a guaranteed salary then we will only need a letter of employment & paystub. (Must be BOTH, as each on their own is easy to fake, but both together are difficult to fake, thus why lenders request and WILL CALL the person on your letter of employment)
If you have been in the same industry but do not have 1 year at your current job we will need proof of previous employment – usually by way of a T4 from your previous employer.
Hourly, Part Time, Commissioned or Contract Employment
We will need your letter of employment, pay stub and the last 2 years Notice of Assessments (NOA). If you are salaried but get bonuses that we will need to use to qualify you for a higher mortgage amount then we will also need your NOAs.
Self Employed – Verifiable Income
We will need proof of self employment of minimum 2 years by way of either: Articles of Incorporation OR HST Filings OR Business Registration OR 2 years T1 Generals (if we are adding back part of your income) AND 2 years Notice of Assessments to average your line 150 taxable income. We might not need all of the above but the more information you can provide the better.
Self Employed – Stated Income
Stated income employment approval is used when there is a large cash component in your line of work (i.e., contractors, truck drivers, musicians etc that don’t claim all income or have large “write-offs” bringing income down). We will require the same evidence as above that you’ve been self-employed for 2 years & most recentyears NOA to show no taxes in arrears. IF you have not completed previous years taxes, we can seek to use a “Stat Dec” or a Stated Income Declaration. This form allows us to “state” a reasonable amount of income to your industry and declare you have no taxes owing. Why: a plumber could reasonably earn over $50G/year but only claim $20G income “on the books” and thus we can state this higher income to approve.
Required Employment Documents Explained:
Letter of Employment
A letter from your employer that states your position, income (salary, hourly, commission based etc,) and tenure. It will need to be dated and signed by your employer along with a phone number for the lender to reach your employer at. We cannot use letters that are older than 30 days so make sure to request one after you have put an offer in.
WHY: The lender needs to confirm you are gainfully employed to ensure you can afford your mortgage payments. The lender will call your employer as well to make sure 1) You did not forge the letter (yes this happens) and 2) You are still employed there.
The paystub allows us to cross reference your earning with the letter of employment. We can also see then if there are deductions such as income tax being taken off that can confirm if you are truly a salaried employee.
WHY: If the paystub is from a third party such as Ceridian it is less likely that is has been forged. We can also use your Year to Date amount to help support your income if you receive bonuses or work overtime.
Notice of Assessment
Your NOA is returned to you from the Canadian Revenue Agency when you file your income taxes for the year. Or as I like to call them – the document that you get back from the government that tells you if you owe money or if you are getting money back and there is a cheque attached. This allows us to see your line 150 – which is your total gross income for the year.
An example of your notice of assessment can be seen HERE
WHY: Lenders like to see your NOA for a few reasons. If you are self employed and haven’t paid taxes in a few years the government takes precedence over the lender to collect their tax arrears. Lenders don’t want to lend if there is a possibility the CRA will come knocking for their money. Lenders will require you to pay the outstanding taxes before lending you money to insure they are in first position on the property.
The down payment is the amount of money you will be putting down toward the purchase of your home. Along with the down payment we will need to show you can cover the closing costs (calculated using 1.5% of your purchase price and include cost of land transfer fees, lawyers fee etc. ) to finalize your mortgage.
To fulfill the down payment condition of your approval we will need 90 days of recent bank statements that show you have the full amount of down payment and enough money to cover closing costs. Your bank statements should show your name to prove you own the account. If money has been moved into your account from another account or you are using money from various accounts we will need a 90 day history on ALL accounts. Any amount being transferred into an account over $2,000 that’s not your regular pay roll, we need to source (as per the Canadian Anti-Money Laundering Act) So if you are moving money from your Tax-Free Savings Account into your chequing account we will need 90 days statements for both accounts.
If you are using money from your RRSP account we will need to see the 90 days from your RRSP and then proof it has been deposited into your bank account.
If the money you are using as a down payment is a gift from a family member you will need to sign a gift letter we’ll provide to you that states the amount being gifted, the names of the person(s) gifting the money, their relationship to you and their signatures.. We will need to see confirmation that the money has been deposited into your account via bank statement. As well we will need a bank statement from the person gifting the money showing they have the ability to gift that money.
We can also include your deposit on the purchase in the down payment but will need a copy of the bank draft, certified cheque or receipt of deposit and a bank statement of that account similar to above.