If you’re thinking of buying a home in the near future, your first task may be to speak with a mortgage broker or lender to find out where you stand financially. More specifically, you’ll want to know how much you can afford and what type of mortgage product might be best for you when it comes time to apply for a home loan.
Before you are approved for a loan, your lender will want to do a thorough analysis of your financial health first. This will help them determine whether or not you’re financially stable enough to secure a mortgage, and what type of interest rate and terms you can get if you are approved.
In order to do that, your lender will need to assess various documents related to your financial profile. You’ll be responsible for supplying these documents to your lender as part of the mortgage application process (avoid these common mortgage application mistakes).
Just about every lender will require specific types of documents. And while your lender may ask for additional documentation, be prepared to provide the following documents when you apply for a home loan.
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Employment/Income Documents
In order to be able to make your mortgage payments every month, you’ll need money coming in on a regular basis. Your income will need to be adequate enough to not only be able to fully cover each mortgage payment but all other debts that you may have as well. Your lender will want to know details about your income and job status to make sure your income is sufficient enough and your position is stable enough to continue making mortgage payments throughout the entire term period.
Here are some documents that you may need to supply that fall under this category:
- Pay stubs – Your current pay stubs will prove how much money you make on a regular basis.
- T1 tax forms – Your tax returns will show how much money you earned in the previous year, which can help prove how creditworthy you are.
- Notice of Assessment – Canada Revenue Agency (CRA) provides employed persons with a notice of assessment every year after their tax returns are submitted. It will list any outstanding taxes that you still owe, helping the lender determine your total debt-to-income ratio.
- Letter of employment from your employer – Your lender will want to know what your job title and status is to make sure that your position is stable and is not expected to be downgraded in the future.
- 3 years of personal tax returns (if you are self-employed) – If you work for yourself, you will need to prove that you have been bringing in a regular income over the past few years. Your tax returns will help show this.
- Business articles of incorporation (if you are self-employed) – Lenders will be able to determine if you are able to pay your bills on time and have enough money for your mortgage payments by looking at your business’s credit report and articles of incorporation.
Learn more about applying for a mortgage when you’re self-employed.
Personal Financial Documents
Any personal information that affects your ability to pay your mortgage or shows your creditworthiness may be requested, such as the following:
- Bank account information – Your lender will want to have access to your bank account and transit number for mortgage payment purposes.
- Statement of assets or investments – Your assets and investments will be worth a certain amount, which can be used as part of your down payment or can simply serve as a back-up in case your income falters at some point.
- Pre-approval letter (if applicable) – If you were pre-approved for a mortgage (which is highly recommended), your lender will want to see this documentation.
- Credit report – Your lender will pull this report on your behalf, which will show your credit score and will help prove your creditworthiness.
- Any additional income sources (if any) – Anything else that you may have that can prove your full income may be asked for by your lender.
Down Payment Documents
You will need to put a down payment toward a new home purchase in order to secure a mortgage, and that money has to come from somewhere. Here are some documents you may be required to submit to prove where the funds from your down payment are coming from.
- Savings or statement of investments from the last 90 days – Any savings that you have accumulated or money you made from investments over the last 90 days should be provided to your lender via a written document.
- Sale agreement of an existing property – Any proceeds from a current home that you have sold that will be used for your down payment must be proven to the lender, which you can do by supplying a copy of the real estate transaction.
- Withdrawals from your RRSP through the Home Buyer’s Plan (HBP) (if applicable) – If you are buying your first home, you may be eligible to use money from your RRSPs to put toward your down payment through the Home Buyer’s Plan.
- Gift Letter (if applicable) – If any money that you are using toward your down payment came from a friend or family member as a gift, you will need to supply a Gift Letter stating that the money is a gift and not required to be paid back.
Property Documents
Your lender will require documents for both the property you are selling and the new one you are buying.
Documents for the property you are purchasing:
- Purchase and sale agreement – This document will detail the terms of the home purchase as well as how much you are paying for the home. Your lender will need this to anticipate your principal amount and to verify the percentage of your down payment.
- MLS listing – The lender will want to see the original listing of your home as it was marketed, which will also include other important pieces of info, such as property tax estimates, condo fees (if applicable), and heating costs.
- Legal description of the home – This includes the full address and postal code.
- Well and septic certificates – These are applicable mainly to rural properties.
Documents for the property you are selling:
- Recent mortgage statement – This will tell the lender how much you still owe on the home and how much equity you have in it.
- Legal description of the home – You should be able to obtain this information from the original purchase agreement of the home or your property tax statement.