Buying a home requires a lot of paperwork (A LOT!). There are offers to make, agreements to review, and contracts to sign. Once the seller accepts your offer to purchase, one would think the paperwork would diminish, but unfortunately this is not the case.
Now you will need to apply for a mortgage, which requires its own small mountain of documentation, which could make or break your mortgage application, so it’s a good idea to start tracking them down well in advance.
Depending on your application, you will need to provide a a least a dozen types of documents during the mortgage approval process. Some of them are obvious, like your credit report and a list of your current assets, while others might come as a surprise. Here are the key aspects of the mortgage approval process that require documentation.
Down Payment Documentation
When you purchase a home, you will need to have a minimum down payment of at least 5% of the purchase price. This money can come from a variety of sources, including your savings, a gift from family, or by using the Home Buyer’s Plan, which allows you to withdraw up to $25,000 from your Registered Savings Plan (RRSP) to use as a down payment.
While your down payment can come from a variety of sources, you do need to prove the origin of your money. If you are using the money from your savings account, you will need to provide your mortgage broker with 90 days (three months worth) of statements from your account.
You will also have to provide an explanation for any irregular deposits during that time including proceeds from the sale of a vehicle or wedding gifts.
If your family is providing you with a monetary gift to go towards your down payment, they will need to explain that gift by providing your broker with a gift letter. A gift letter will need to include the following information: the name of the gift giver, the name of the recipient, the total amount of the gift being received, along with confirmation that the gift is genuine and has no expectation of repayment.
If you are using the Home Buyers Plan to help fund your down payment, you will need to provide a copy of the T1036 form that you submitted to your bank to make the withdrawal from your RRSP.
Transactional Documentation
Transactional documentation for a mortgage refers to information about the actual home you are purchasing. This should include the following: a copy of the original MLS listing, along with the accepted offer to purchase. Your real estate agent should provide this information to your mortgage broker on your behalf. In some situations, a lender may require a professional appraiser to verify the fair market price of the home.
Income Documentation
Finally, your lender will need to verify your income. If you have a full-time job, you’ll need to provide your T4 from the previous tax year, two recent pay stubs and a letter from your employer confirming your employment and salary. Depending on how responsive your employer is, this letter could take some time, so it’s best to secure it as early in the home buying process as possible.
If you are self-employed or have a different employment arrangement, you’ll need to provide a different set of documents. These documents are meant to prove income that is considered non-traditional. You’ll need two years of Notice of Assessments (issued by the Canada Revenue Agency) and possibly two T1 Generals, which is the PDF file that is created and submitted to the CRA when you file your taxes online or with an accountant.
Property Documentation
While this is not a necessity for every home, some rural homes will require extra documentation because they aren’t on municipal water and sewer lines. For example, a rural home may use its own water well and septic system. Your lender may require the system to be inspected by a third-party company, and the well water may need to be tested to ensure it is suitable for consumption.
While this additional documentation may seem onerous at the time, keep in mind that these additional inspections are designed to protect your investment as well as your lender’s. The last thing you want is for your home’s well water to be unsuitable for consumption, or for the septic system to requiring replacing.
Whether you are just getting started with the home-buying process or you are already well underway, it’s never to late to start getting your documentation in order.
Please contact me directly if you have any questions or would like a customized list of documents you’ll need for a mortgage so there will be no surprises when it comes time for you to move forward with your home purchase.
Source: www.clearhome.ca
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