Buying a new property or refinancing your mortgage in Canada requires an overwhelming amount of information. Before you hire a real estate agent, make sure to have your mortgage sorted. This prevents you from wasting each other's time. There are five categories of documents you need; identification, proof of income, basic financial information, down payment confirmation, and property details. This article will simplify the process by helping you understand each document.
Continue reading to understand the typical documents needed to qualify for a mortgage in Canada. This article will cover all the categories and explain the documents required for each type. However, some mortgage lenders may require different and additional information. This article’s end is a mortgage document checklist to simplify your process.
Before you can begin applying for a mortgage, your lender will want to verify your identification. Quite simply, you'll need to show:
This category is designed to prove mortgage lenders your monthly salary and your ability to meet debt servicing ratios. In particular, lenders will calculate your monthly mortgage payments to ensure they don't exceed 39% of your gross income. Additionally, your income has a direct effect on your maximum mortgage affordability.
Your recent paystubs will verify your income. Mortgage lenders may ask for the most recent two-three pay stubs, so make sure you have them handy.
This form demonstrates how much income you earned the previous tax year. In general, lenders will only require your T1 from the prior year.
An NOA summarizes a successful submission of your tax returns to the Canada Revenue Agency. Lenders will use it to determine your debt-to-income ratios. You will need your NOAs from the two most recent tax years.
Your T4 tax form shows how much income you received as an employee. Your T4A tax form will list any income, such as pensions, severance pay, and investment income. Self-employed individuals receive a T4A, whereas employees receive a T4. You receive these forms each year from your employer.
This letter provides lenders with a sense of your job stability. Make sure the letter includes:
Additionally, make sure the letter is on a company letterhead, signed by HR or a manager, and no older than 30 days. You can learn more on our guide to getting a letter of employment for a mortgage.
The most common mistake of homebuyers is not budgeting for closing costs. These are one-time fees that must be paid when finalizing your purchase. In general, these cost around 3%-4% of the final purchase price. However, you can use a closing cost calculator to get a better estimate.
This category is designed to provide lenders with a snapshot of your overall financial situation. In particular, they will want to know your credit score and credit history.
Your credit score is a three-digit number that lenders use to measure your creditworthiness. To receive a mortgage, you'll need a minimum credit score of 600 for banks. There are many ways to check your credit score for free.
A mortgage pre-approval letter demonstrates that you have enough income and credit to meet the lending criteria. You can then use it when applying for a mortgage in Canada, which could qualify you for lower Canadian interest rates.
Your bank statements will show your net worth and help determine your total liabilities or debts. Mortgage lenders may ask for three full years of statements. If not, the most recent one-two months should be enough.
Your list of assets will show the value of your investments and property. This may include cars, boats, real estate, RRSPs, and stocks. Lenders will use this to calculate your net worth.
This category is pretty straightforward - lenders want to make sure you have the funds to cover your down payment. There are multiple methods to prove your source of funds, whether through your investments, the sale of your previous home, or a gift. You do not need all of the documents listed below, just enough to prove you can afford the down payment. It also helps to understand if you will have an insured or uninsured mortgage.
This document proves that the funds you use for your down payment are liquid (meaning they can be easily accessed). The statement must be less than 90 days old and list the account holder, account number, type of account, and current balance. If you are selling stocks in a taxable account, keep in mind the capital gains tax you will need to pay at the end of the tax year.
Existing homeowners can use the proceeds from selling their previous house as the downpayment for their next house. If you are using the sale of your last home for this, then you will need to include a copy of the offer.
However, if you can’t sell your home fast enough, then don't worry - you can use a HELOC or a bridge loan to finance your down payment. Just be aware of how these loans affect your debt servicing ratios, as mentioned in category one.
First-time homebuyers in Canada can withdraw up to $35,000 from their RRSPs for a down payment. This is known as the RRSP Home Buyers' Plan, which allows qualified individuals to receive the money without paying taxes. However, the funds must be repaid into your account within 15 years.
A gift letter proves that you will receive funds for your down payment from an outside source, such as friends and family. The letter should include:
Given the rising housing market prices in Canada, it's tough for many to afford a down payment. This is why the federal, provincial, and municipal governments across Canada have created down payment assistance programs to help you buy a home.
There are also many incentives for first-time homebuyers, such as tax rebates.
The final category is straightforward - lenders want to see details of the property you are buying. Additionally, if you are selling another home, they ask for information on it too.
This is the signed contract between you and the seller. Lenders want to see this because it provides details such as the date of purchase and final purchase price.
The listing is helpful to mortgage lenders because it provides them with an estimation of your property taxes, utility costs, and condo fees (if buying a condominium). These are all inputs required to calculate your gross debt service ratio.
Follow the tips below to expedite your mortgage application.
A legal description is a complete legal description of the property that states the full address and postal code. This information can be found on your final purchase and sale agreement and on documents such as tax assessments, title certificates, etc.
Most mortgage lenders in Canada will require you to have homeowners insurance. This will protect your home from repair costs due to water damage, fire, and more. You will need to provide a copy of the policy to your lender. If you are buying a condo then you will need to prove you have condo insurance. If you need home insurance, the best way is to apply for quotes online. This will give you a feel for pricing, and understand which policies you need. You can visit our page for a full list of insurance providers in Canada.
Finally, lenders require you to obtain title insurance in Canada. This will protect your lender if someone else has a claim on your property.
Those selling their existing home to buy a new one will need to submit a few additional documents to their mortgage lender. In particular, you will need to submit a recent mortgage statement and a legal description of the home you are selling.
Many documents are required if you're trying to get approved for a mortgage in Canada. Mortgage lenders want proof of your identification, income and basic financial information. They also need confirmation on the down payment source. You'll also be asked to provide property details about the house, including legal descriptions and insurance policies. If you already have a mortgage, you can save time when buying a new home by porting your existing mortgage.
Government-issued ID (with current address)
Most two-three recent pay stubs
T1 general tax form from the prior year
Notice of assessment from the last two years
T4 tax form
Letter of employment from the previous 30 days
T4A tax form
All files from above but for a more extended duration
Lease/ rental agreement from tenants
Credit score above 600
Mortgage pre-approval letter
Bank statements from the most recent one-two months
List of assets and investments
Statement of savings or investments no older than 90 days
Sale agreement of existing property
RRSP withdrawals (first-time buyers)
Gift letter (gifting down payment)
Final purchase and sale agreement
The legal description of the home you are buying
Homeowners insurance policy
Lenders' title insurance
Additional Considerations (if also selling a home)
Recent mortgage statement
The legal description of the home you are selling