Some people describe the mortgage loan closing process as “signing your life away” because of all the documents you must sign. In addition to all this signing, there are also many papers you must bring to closing — many documents for mortgage approval. We have put together the most trusted resource for mortgage documents in Canada on this page. After reading it, you will be better prepared to apply for a mortgage elsewhere on our site.
Many people who begin the process of applying for a mortgage in Canada are surprised to learn just how document intensive it can be to get a home loan. On the one hand, this should not be very surprising. The bank is loaning you tens or even hundreds of thousands of dollars, and they want to make sure that they get their money back. Documentation helps lenders measure the risk they are taking when they consider your loan request. On the other hand, there are few things in life as document intensive as a mortgage application, so there is little wonder that many are taken aback by all the document requests from their lender.
In any case, you need to provide many different documents to the lender during the loan application process, and we have listed these documents below. Note that it will be important to keep your paperwork organized so that you have easy access to anything the lender may request from you. This helps speed up the loan approval process, which often makes the difference between getting the home you want and losing it to another bidder. Mortgage approval essentially guarantees that you will get the home you want when the seller agrees to the purchasing terms because pre-approval gives you a sure source of funds. Approval delays, on the contrary, can free the seller to consider other offers and sell the home that should have been yours to someone who comes to the table with full mortgage approval. By having all of your documents organized and accessible, you are ready to give your lender exactly what it wants, thereby preventing any approval delays.
As noted above, there are many documents that lenders request from you during the mortgage process. What should you have on hand? The following checklist answers that question:
• Offer to Purchase — The offer to purchase lays out the terms of the home purchase, and it explains how much you are going to pay for the residence and under what conditions. The lender needs this to verify the percentage of your down payment, estimate your principal balance, and so on.
• Existing Mortgages — If there are any existing mortgages on the property, the lender will also want that information from the seller. This gives the lender certainty that any liens against the home are paid off and that no one else but you and the lender will have a claim to the property once your loan has closed.
• Letter of Employment — If you are not self-employed, an official letter of employment from your employer will be among the mortgage documents required by your lender. This letter contains information on the date you were hired, the length of time you have worked for your employer, and your income. It shows the lender that you will have an ongoing source of funds from which you can pay your mortgage.
• Current Pay Stub — A current pay stub is also used to prove the level of income you are earning and, therefore, that you are a good credit risk.
• Notice of Assessment — The notice of assessment from the Canada Revenue Agency that is sent out to all taxpayers after they have submitted their tax returns is also part of your mortgage documentation. It lists any outstanding taxes you have due, giving the lender a true idea of your total debt-to-income ratio.
• T1 General Income Tax Form — Your T1 tax return from the year before you purchase your home also demonstrates how much money you have earned in the previous year, helping to prove your creditworthiness.
• 3 Years of Personal Tax Returns (Self-Employed Persons Only) — Those who own their own company or otherwise work for themselves often have an unpredictable income. This makes self-employed individuals, on average, a greater risk to lenders than those who work for others. Since self-employed persons cannot provide a letter of employment, the last three years of personal tax returns allow lenders to calculate average income and determine whether the applicant is a big financial risk.
• Business Credit Report and Articles of Incorporation (Self-Employed Persons Only) — Lenders get a good idea as to whether self-employed people can pay their bills on time and have money for their mortgage payments by looking at a company’s credit report and articles of incorporation. Besides proving that the self-employed applicant is actually working, such things help a lender estimate whether the business is likely to survive and continue to provide money for a mortgage payment.
• Signed Income Statement & Balance Sheet and an Audited Financial Statement or Business Tax Return (Self-Employed Persons Only) — These documents verify the truthfulness of your other documentation if you are self-employed and help lenders get a true sense of your financial health.
• Proof of Assets and Liabilities — Lenders will use your assets and liabilities to verify whether you have a sufficient down payment and to determine your debt-to-income ratio and creditworthiness. Your credit report is usually all that is required to prove your liabilities, but your lender will want to see property appraisals, savings and stock account statements, and other such things to prove your assets.
As we have said, you want to do everything you can to streamline the mortgage approval process so that you can get your loan and buy the house you want before the seller sells it to someone else. One of the best ways to do this is to contact your lender ahead of time and ask about the documents that will be required. This helps ensure that you do not forget anything and slow down the mortgage approval process inadvertently.
As you are gathering your documents, you will want to keep them organized for easy access. Here are some tips:
• Label the tabs on an expanding folder and put each document in its own folder.
• Keep electronic and paper copies of your mortgage documents whenever possible.
• Save information on home improvements in a designated place so that you can take advantage of federal tax credits.
• Consider using a safety deposit box to store any documents that indicate past loans have been satisfied. You may need them in the future if creditors make errors when reporting your debt history.
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