Mortgage Supporting Documents
Once you are eligible for a mortgage and are finalizing your mortgage, it comes down to managing and fulfilling your mortgage conditions. Your mortgage conditions are represented by your mortgage support documents, which make your mortgage support documents important.
While mortgage support documents are not the most exciting mortgage topic to cover, they are an essential one: not fulfilling your mortgage conditions or not being able to provide your lender with the documents it requires can cause your mortgage not to close and put you into severe financial hardship.
It is impossible to cover all the mortgage support documents that you will need to provide us, so we will only cover a few general points and some of the primary support documents we will need from you.
These general, but important points, will help you to know what documents we may request from you and why we are requesting these documents from you:
- The 5 Cs of Credit: Lenders use the 5 Cs of credit to determine their lending risk and, in turn, the supporting documents you need to provide the lender:
- Character: The general impression you make as a potential mortgagee.
- Collateral: The property, its suitability, marketability, etc.
- Capital: The money you are investing in the property; down payment.
- Credit: Your creditworthiness and ability to perform credit obligations
- Capacity: Your ability to repay the mortgage using debt service ratios.
- Federal Mandates: Some documents are based on federal requirements, and lenders have no option but to require these documents—e.g. Documents required by the Anti-money Laundering Act.
- In Writing: All support documents need to be in writing from an arms-length, third-party source. Lenders may verify documents verbally, e.g. employment, but lenders will not accept verbal information nor documents from a non-arms-length source.
- Changing Requirements: Some document requirements for some loans may remain the same, but some change. Lenders, regulators, the housing and financial markets, etc., change and lenders will change their mortgage conditions, underwriting guidelines, etc., without notice or warning to mitigate their risks. These changes will be reflected in the documents your lender requires from you. For e.g. COVID-19 is a good example. Lenders verify much more because of layoffs, changes in the rental market, rapidly increasing house prices, etc. Because of constant changes, we highly recommend that you obtain a 5-8 banking day, Condition of Finance [COF], when you purchase a property to ensure you can meet your lender’s conditions.
- Documents Upfront: Because support documents are so important and so much can go wrong if you cannot fulfill your mortgage conditions, you are best protected when you provide your broker with your primary support documents upfront and before they meet with you. Any broker or bank who provides you with an interest rate or mortgage options before checking your credit, reviewing your support documents, and establishing your mortgage eligibility is making an irresponsible guess.
- Lender Discretion: Please note, lenders reserve the exclusive right to request new, updated, additional documents from you at any time, for any or no reason, without prior notice or warning to meet their risks requirements.
- Document Expiry: Some documents have an expiry date. For e.g. employment letters and pay stubs usually expire after 30-45 days.
- Once Approved, Not Always Approved: During the pre-closing mortgage process [From application to the closing date]- borrowers must meet and continue to meet their mortgage conditions, e.g., if a borrower was approved for a mortgage but lose their employment, increase their liabilities or their credit diminishes to an unacceptable level the borrower may not be able to fulfil their lender’s mortgage conditions and the lender may cancel the mortgage commitment.
- What is Heard is Disclosed: Whatever you tell your broker or bank will be disclosed to lenders. Brokers have a fiduciary responsibility to declare what you tell us to lenders.
The documents that can severely affect your mortgage eligibility include your identity, income, down payment and property details. The details of the specific property that you will purchase may not be available during the mortgage pre-qualification process, but the rest should be, and you should expect your broker to request at least these primary support documents from you:
- Application: Essential information for your broker to assess your mortgage eligibility, options, etc.
- Consent: Consent to check your credit and to meet CASL requirements.
- Identity: 2 Photo IDs
- Income Verification
- Funds [Down Payment & Closing Costs] Verification.
What income support documents will be required of you depends on including income source, the nature of your employment, employment tenure, credit status, compensation structure, etc.
As a general rule, lenders usually require fewer supporting documents from borrowers with stable income and arms-length and reputable income sources. Conversely, more income supporting documents will be required from self-employed, variable income or damaged high-risk credit applicants. Let’s define some terms:
- Who are self-employed: Any borrower with a non-arms-length relationship to their employer/income source is usually considered self-employed for mortgage qualification purposes. e.g. corporation owners, partnerships, sole proprietors, independent contractors, major shareholders of corporations, any borrower whose employer is not deducting income taxes at source, etc.
- Variable Income: These applicants are not self-employed, but their compensation may include bonuses, commission, overtime, investment, pension, income, rental property income, etc. and/or their employment may be part-time, seasonal, casual, temporary, contract, etc.
- What is Stable/Regular Income: While no income can ever be guaranteed, lenders consider regular, full-time, salaried, permanent income to be the most stable. Minimum, guaranteed, and hourly income typically also fall into this category.
- Income Source: If a lender cannot find an employer on the internet, the borrower does not get pay stubs, the borrower gets paid by cheque, etc., a lender will typically request additional income verification documents.
- High Risk or Damaged Credit Applicants: These applicants have to qualify for an alternate mortgage with higher interest rates because their credit may be damaged, insufficient income, etc.
Here are some examples of the documents that lenders may require from Borrowers:
1. Self-employed Applicants:
- Proof of Income Source: The income source must be active for at least two years
- Corporations: Articles of Incorporation
- Partnerships/Sole Proprietors: Business Registration
- All Other Self-Employed Applicants: T1 Generals, including Statement of Business Activities Most Recent Two Years’]
- Sole Income Source, Self Employed Applicants: Letter from the income source.
- Major Shareholders: Shareholder Agreements
2. Proof of Income:
- Corporations: Corporate Financial Statements + T5s [Most Recent Two Years’ for all]
- All Self-employed Applicants: T1 Generals + Personal Notices of Assessments [NOA] + T4As [Most Recent Two Years’ for all]
- Sometimes Required: 6 Months Business Bank Statements
3. Variable Income Applicants:
Variable income is eligible for mortgage application purposes only once an applicant has been in the same industry and the same employer for at least two years. Here are the typical documents that lenders may require from applicants whose compensation includes variable income.
- Letter of Employment: Not more than 30 days old
- Pay Stub: Most recent
- Notices of Assessments [NOAs]: Most Recent Two Years’
- Rental Property Owners: T1 Generals [Most Recent Two Years’], including Statement of Rentals + Lease Agreements.
- Most Recent Two Years’ T4As
- Most Recent Two Years’ T4s
- Most Recent Two Years’ T5s
- Most Recent Two Years’ T1 Generals
3. Regular Income Applicants
These are the supporting documents that are usually required from regular income applicants:
- Letter of Employment: Not more than 30 days old
- Pay Stub: Most recent.
- Sometimes Required: Most Recent Two Years’ T4s.
4. Applicants With Other Income Sources:
Here are documents that we may require if you have an unconventional but acceptable income source.
- Child Tax Benefits: Proof of CCB Income
- Pension Income: Old Age Security [OAS] Statements, Canada Pension Plan [CPP] Statements, Pension Statements, T4As, 3-Months’ Bank Statements, Etc.
- Investment Income: Investment Statements, T4As, 3-Months’ Bank Statements
- Spousal/Child Support Income: Separation Agreement, 3-Months Bank Statements, Most Recent Two Years’ T1 Generals, Most Recent Two Years’ Notices of Assessments.
These supporting documents are required to prove that you have sufficient down payment and closing costs funds and that your funds are from acceptable sources and meet legal requirements. All funds must meet Canadian AML, FINTRAC, etc., legal and lender requirements. AML regulations require you to verify and provide a paper trail for all unmarked deposits into your bank accounts of $3,000 or more.
The supporting documents your lender will require from you depend on your funds’ sources.
Here are a few examples:
- Own Resources: 3-Month’s bank, investment, RRSP, stocks, bonds, statements. | Bank statement showing investments, RRSPs withdrawn and deposited into the bank account.
- Gifts: Lender issued gift letter, Borrower bank statement showing the exact deposited gift amount, Donor bank statement showing the exact gift amount withdrawal/transfer.
- Borrowed – Unsecured Debt: Unsecured Line of Credit [LOC] statement from a major financial institution showing sufficient available credit limit for the down payment.
- Borrowed – Secured Debt: The applicant’s own Home Equity Line of Credit [HELOC] statement showing sufficient credit limit for the down payment and/or closing costs.
- Sale of a Property: Mortgage statement, sale agreement, solicitor statement of disbursements, bank statement showing deposited proceeds from the sale.
- Wedding Gifts: Wedding invitation, bank statement showing gift deposited.
- “Money Under the Mattress” [Cash not in a bank account]: These funds cannot be used for mortgage purposes unless they have been deposited into your bank account for more than 90 days.
We understand that it is a lot of work to gather and provide us with your supporting documents. We also know that some of the information asked of you, like bank statements, can seem intrusive and never-ending, so we try our best to request as little as possible from you while also protecting you. We don’t want to irritate you, but if given a choice, we would rather err on being too thorough rather than requesting too few documents from you too late and putting your mortgage at risk.
- Subject to lender approval, terms & conditions, etc.
- Subject to change without notice or prior warning.
- For information and illustrative purposes only.
- Not for decision-making purposes
- Does not include all underwriting guidelines, mortgage rules, etc.