“Why do they need this? It wasn’t like that the last time I bought a house.”
One of the common frustrations shared by mortgage applicants is the amount of paperwork required to obtain a mortgage.
With interest rates higher now, I've found that lenders are even more specific about what they require to approve mortgage applications. While it may seem like a tremendous amount of documentation is required, we need to take a step back and think about the fact that we are asking a lender for hundreds of thousands of dollars.
Would you lend that amount of money to someone you barely know?
Lenders don't ask for additional documentation to make your life more difficult. They are doing their due diligence to ensure you will be able to pay your mortgage. Under Canadian anti-money laundering legislation and counter-terrorism financing laws, potential lenders are required to document large or suspicious deposits.
How can you make this a little simpler for yourself? If you're getting ready to buy a home, make sure your paperwork is organized.
In terms of process, I send my clients an advance list of the documentation they will likely need for mortgage approval. It may seem like overkill in some cases, but by being organized in advance, I can often get an approval within a few days or sometimes even the same day.
Regardless of how prepared you are from the start, lenders will sometimes ask for additional information, so don't be surprised if you're asked for even more documentation. Many lenders require verification of two years of consistent employment, so it is helpful to obtain T4s and Notices of Assessment from the Canada Revenue Agency from the last two years.
You will need to ask your employer for a letter outlining your salary, job title and start date. You will also be asked for a current pay stub. You will need to demonstrate where your initial payment is coming from. Lenders need a 90-day history, which means you'll need to provide bank statements from the last three months. It is critical that the statements you provide clearly show your name and account number. D0 do not cross out the list of transactions as creditors will not accept this.
If you have large deposits during the last three months (generally over $2,000), you will also have to show a 90-day history of those funds.
If you are self-employed, you will likely need additional information. Depending on the mortgage product you are using, you will be asked for your Valuation Notices and complete T1 Generals for the previous two years. If you are incorporated, you will probably be asked to confirm this.
A mortgage broker recently used an analogy with one of his clients. The customer was a merchant. The broker explained that, if the client did not have all the necessary materials and supplies, he would not be able to complete his work. For a mortgage broker, your paperwork amounts to these materials and supplies. Without the proper documentation, we will not be able to approve your mortgage.
If you are thinking about buying a house, or are already looking, the more prepared you are with the paperwork, the smoother your approval will be. And your mortgage professional will be very grateful.
This article was written by or on behalf of a third-party columnist and does not necessarily reflect the views of Castanet.