Getting a mortgage today requires a lot more documentation than it did in the past. It went from only needing proof of employment and a personal ID, to a whole list of documentation and paperwork to prove your financial stability.
The list gets consistently changed and updated as lenders try to protect themselves as much as they can, preventing having a similar experience to the devastating Great Recession. The list you will see in this article covers what is currently required by most lenders, however, make sure to consult your lender for the complete set of documents you will be required to present.
REQUIRED DOCUMENTATION FOR ALL TRANSACTIONS
As we just mentioned, there are some papers that you will be asked for by almost every lender you go to, which mainly revolves around your identity, employment, and family status, the three basic factors lenders look at when approving mortgage:
Documents to verify identity:
- Photo ID – All lenders have this as a requirement to confirm the identity of the borrower/applicant. It can be a government-issued ID, a driver’s license, or a passport.
Documents to verify employment:
- Job Letter / Letter of Employment – Lenders want to see your employment status and if you have a regular employment contract that will ensure your ability to repay the mortgage regularly in the future.
- T4 (T4A for commissioned employees) – The T4 is a document your employer provides containing information about the income you’ve earned through their employment over 1 year. It’s mostly used for tax returns, but lenders also require this document to assess your creditworthiness.
Documents to verify income:
- Pay Stubs, W-2s or other proof of income – Although your tax assessment gives lenders a clear understanding of you financial stability, your pay stubs allow them to get a better idea on your gross and net incomes. This means that if you have income from other sources besides your salary, you would need to provide your lenders with documentation on that as well.
- Bank Statements and other assets – Lenders require your bank statements to check the status of your accounts and if you have numerous months worth of mortgage payments within the bank. You will be asked to provide bank statements from a few months back to confirm that the money you have in your account didn’t just appear out of nowhere in the past week, but that you earned it on your own. If you have some investments, individual retirement accounts, 401(k)s, or life insurance, lenders will need to check that as well.
- Notice of Assessment (NOA) – When your tax returns have been completed and filed, your federal government will issue a Notice of Assessment which shows a breakdown of the income in the last year. This is a valuable document for your lenders because it has been checked and approved by government officials and financial experts, so they can fully rely on the information stated in it.
- T1 General / Tax Return –Usually, lenders look at the last years regarding tax returns, so make sure that what you reported as your earnings are consistent with your annual income through pay stubs and that your income doesn’t fluctuate too much from year to year. To confirm tax returns, you will most likely be required to sign a Form 4506-T, a document allowing lenders to request a copy of your tax returns from the IRS.
Those who are self-employed or business owners will be required to provide the following documents:
- Financial Statements – for business owners, these are the basic financial documents providing an overview of the company’s assets and other financial data lenders need to decide on the mortgage question.
- Master Business License – again, business owners will be required to provide proof that the business they claim they own is legally theirs, officially registered and fully operational.
- Business Cheque – required from the self-employed borrowers, the business check is associated with the businesses’ bank account.
Other potential documents:
- Divorce/Separation Agreement – The Divorce/Separation Agreement allows lenders to view the conditions of the divorce/separation and usually includes any financial paperwork required for payments.
- Child Support Order/Agreement – The child support agreement will give the lenders an overview of the terms or conditions of any child support you may be paying, including any required payments.
SPECIFIC DOCUMENTATION FOR A HOME PURCHASE
If you’re looking to buy a home through a mortgage, there are some additional documents you would need to provide:
- Agreement of Purchase and Sale – One of the key documents when applying for a mortgage to buy a home is the actual agreement. It has to be complete with all the details required by your country and signed by both parties – the buyer and the seller.
- MLS Listing – Although it may sound illogical that lenders would like to see the MLS listing number of the property you’re intended on buying, this is a way for them to confirm that the transaction is, in fact, real and not just a way for you and the “selling party” to get the mortgage without making a real transaction. In addition to this, the MLS listing shows the home that is to be purchased and all its features, allowing lenders to assess its value.
- Proof of Down payment – Similar to the previous point, the proof of down payment will provide reliable proof for lenders that you are serious about buying the home.
Other potential documents:
- Rental Letter (if applicable) – if the property will be occupied by a tenant, the rental letter confirms that the prospective tenant is a responsible, reliable, and a financially stable individual.
- Real estate salesperson Information (name, contact info and brokerage) – It’s not rare that lenders contact the real estate agents or salesperson to consult them about the property and ask them questions about it.
DOCUMENTATION FOR A REFINANCE, SWITCH, OR EQUITY TAKE-OUT
You may be applying to refinance your mortgage, switch the lender of the mortgage or take equity out of your property. In that case, you will be required to provide:
- Current mortgage statement – if you already have a mortgage and looking to refinance it or switch the lender, you need to show your new lender the current financial standing of the mortgage through this statement. The information in this document will give lenders an insight on the mortgage balance, the interest rate, time remaining and other valuable information.
- Transfer/Deed – this is one of the basic documents relating to a property that shows the current and previous owners of the home.
- Tax Bill / Property tax statement – this document provided by the municipal tax authority and shows that all taxes related to the property are regularly paid.
- Property insurance policy – Most lenders will require property insurance to cover risks like fire, vandalism, flooding and other situations that may cause damage to the property.
Other potential documents:
- Mortgage repayment history – if you’re refinancing your mortgage or switching the lender, you may need to prove that you’ve made regular mortgage repayments in the past, usually the last year or two.
- Gift Letter – If your family, friends or relatives are helping you with the house purchase by giving you money, you will need to provide a written proof stating that the money was given as a gift, not a loan.
- Property Assessment – The Municipal Property Assessment Corporation can provide you with this document that contains information on the property value determined by the MPAC.
- Condominium Status Certificate (Formerly called the Estoppel Certificate) – required only if the property you’re purchasing is a condo. This document confirms that the condominium corporation stands in good order and includes information on the maintenance fee and other expenses for the condo.
- Certificate of Independent Legal Advice (ILA) – This document is written and provided by your lawyer (as the buyer) to ensure the lender that they’ve sat down with you and explained how every step of the mortgage process works.
- Proof of Insurance – Before you sit down and discuss everything with your lawyer regarding the closure of the mortgage, your property needs to have a home and fire insurance policy.
The ultimate goal of your lender is to assess your financial stability as a borrower and your ability to repay the mortgage regularly. For them, mortgages are high and risky investments, which is why they require you to provide documents that will help them paint an accurate picture of your finances and creditworthiness.
This brings us to the conclusion of today’s article – providing the accurate, trustworthy and reliable documents will not only shorten the time required you to get approved for the mortgage, but it will also help your lenders give you the right amount of mortgage, which is beneficial for you in the end as well. It means that your monthly mortgage repayments will be easily bearable for your budget, ultimately protecting your finances and credit score.