With interest rates dropping and housing prices considered a ‘buyers market’, potential first time homebuyers may wonder what is required when applying for a mortgage.
A mortgage is likely the biggest loan you’ll have in your lifetime, so it’s important you’re prepared and knowledgeable about the process before you begin.
Whether you go to your financial institution or to a personal mortgage consultant, you will be required to provide the following information.
- This includes name, age, marital status, dependants, social insurance number.
- Balance of chequing and savings accounts with the address of your financial institution(s).
- Credit card account numbers with current balance (Visa, MasterCard, American Express, department stores).
- Stocks, bonds, mutual funds and RRSP value.
- List of any outstanding debts and the remaining balance. This includes student loans, car loans or any other personal loan.
- List of assets such as a car(s), furniture, etc. and the estimated value of each.
- Confirmation of employment: job letter on employer’s letterhead showing position, length of employment, amount of gross income and future prospects.
- Confirmation of income: two years T-4 slips or page of tax returns that shows your income and one current pay stub. Written confirmation of other income being used to support the application, such as suite or rental income, spousal support, and government pensions.
- If self-employed: three year income statements and balance sheets, three year Revenue Canada assessments and three year tax filings (T1 general).
- A “gift” letter for any funds received from relatives to purchase your home.
Your financial institution relies on two ratios to qualify you for your mortgage: gross debt service (GDS) and total debt service (TDS). GDS compares monthly housing expenses to personal monthly income. TDS compares all monthly debt payments (loans, car payments, credit cards and housing debt) to personal monthly income. To qualify for a mortgage, your GDS can’t exceed 32 per cent of your monthly income and TDS can’t exceed 40 per cent.
All of the information you provide will be verified and a credit report will be used to view current and past credit rating. When all the necessary documentation is completed, it is sent to the underwriter of the mortgage.
If you plan to mortgage 75 per cent or more of the purchase price of the home, your lender will require mortgage insurance. The two mortgage insurers who underwrite loans in Canada are: Canada Mortgage and Housing and GE Capital Corporation. They will examine your loan application, look at the appraised value of the property and your ability to pay the mortgage. The underwriter will then either approve or deny the mortgage loan.
Once your mortgage loan is approved, closing documents will be prepared, signed and recorded by a lawyer or notary. The funds will then be properly disbursed and accounted for when the closing is completed.