Mortgage Document Checklist 2024: What You Need Before Applying For A Mortgage In Canada

What You Need Before Applying For A Mortgage In Canada
What You Need Before Applying For A Mortgage In Canada
What You Need Before Applying For A Mortgage In Canada

Mortgage in Canada makes it a significant to purchasing one’s dream home. This project requires a lot of thought and effort. There is a need to decide the type of property that one wishes to purchase and how he will be paying for it.

When one can’t afford to pay the whole purchase price upfront, mortgages come into play as a great financial solution.

To get a mortgage in Canada, there are numerous requirements that lenders expect borrowers to meet, and one of the most important ones is the documents needed to complete the mortgage process.

If one aims to get their mortgage application approved, one must gather all the necessary documents ahead of time.

In this article, we will be taking a look at the Mortgage Document Checklist: What you need before applying for a mortgage in Canada.

We will also be doing a proper breakdown of each of these documents so you will understand their significance and the role they play in helping you secure a good mortgage.

What is a Mortgage in Canada?

A mortgage is a type of loan used to buy a house or other type of real estate. The lender approves a certain amount of money for the borrower, which he uses to buy a property. The purchased property automatically stands as a collateral for the loan, and the borrower is expected to refund the lender over time, usually in a string of regular payments that are split into principal and interest.

To get approved for a mortgage, the borrower is expected to meet certain requirements such as minimum credit scores and down payments. The interest rate on a mortgage can either be fixed or adjustable.

Mortgages are also referred to as liens against property. Therefore, if the borrower fails to make regular payments on the mortgage, the lender is allowed to foreclose on the property.

What are Fixed-Rate Mortgages?

Mortgages typically come with fixed interest rates, meaning that the interest rate remains the same throughout the loan term, as do the borrower’s monthly payments towards servicing the mortgage.

What are Adjustable-Rate Mortgages (ARM)?

Unlike fixed-rate, the interest rate on adjustable-rate mortgages (ARM) can change before the end of the loan term, depending on dominant interest rates. The interest rate here is usually fixed for a particular period of time, but it then eventually changes.

How do I get a Mortgage in Canada?

To easily and successfully get a mortgage in Canada, there are certain steps that you need to take. These steps are as follows:

1. Analyze your credit: The first step to take when you’re trying to get a mortgage in Canada is to take a thorough look at your credit report and ensure that it doesn’t have any error. Also, you need to determine if your credit score meets lenders’ requirements.

If you have poor credit, work on improving it, as this will help to increase your chances of getting a mortgage with favorable terms.

2. Determine the amount that you can afford: The next step is to think about the amount that you would be capable of paying back. One of the best ways to go about this is by doing a mortgage pre-qualification.

Some of the things that you need to consider when deciding on the amount (of mortgage) that you can afford is your living costs, your outstanding debts, your pre-tax income, the closing costs, and so on.

3. Decide the type of mortgage you want: When making this decision, you need to consider the duration of the mortgage, the type of interest rate that will come with the loan (whether fixed or variable, or both), the payment options available (weekly or monthly), the amortization period, and whether you want an open or closed mortgage.

4. Compare lenders: Compare different mortgage lenders by looking at mortgage products, fees, and interest rates.

This can be done by researching the current mortgage offers at Canadian financial institutions to juxtapose loan features and rates. You could also use a mortgage broker who will get the task done for you.

5. Apply for mortgage pre-approval: This will help you find out the highest amount of mortgage that a lender can give you. This way, you will be able to plan your finances well.

6. Apply for a mortgage: This process will be similar to the pre-approval process, except that pre-approvals are not legally binding.

What Is A Mortgage Pre-Approval?

This is a way for borrowers to determine if they qualify for the mortgage amount they’ve applied for, based on a review of their credit history, credit scores, income and assets.

This process can be executed without an agreement to buy a property afterwards. If the pre-approval works out, the borrower will get a preapproval letter, which is an offer to lend them a particular amount, valid for 90 days.

However, this is not the end of the mortgage process. After pre-approval, the borrower still needs to find their desired choice of home, negotiate a purchase price, get a home appraiser to confirm that the sales price is worth the value of the home vet the title history to ensure the borrower can safely assume ownership of the home.

One of the many benefits of a mortgage pre-approval is that it gives you an opportunity to compare options offered by different lenders, and pick the one that you find most stutable for you.

Where Can I Get A Mortgage Pre-Approval

You can get a mortgage pre-approval from two entities:

  • Mortgage lenders.
  • Mortgage brokers.

Mortgage Lenders

These are financial institutions such as banks or private companies that lend money directly to the borrower.

Each lender has their interest rates and loan terms, which is why it is important to get offers from different lenders and compare them before accepting an offer.

Mortgage lenders include financial institutions such as:

  • Banks.
  • Insurance companies.
  • Loan companies.
  • Mortgage companies.
  • Credit unions, and so on.

Mortgage Brokers

Unlike mortgage lenders, mortgage brokers don’t offer loans to borrowers. Instead, they act as an intermediary that connects borrowers with lenders. While some lenders only make offers directly to borrowers, others make them available through brokers.

Brokers usually have a variety of mortgage products at hand, so there are numerous options for the borrower to choose from. 

Instead of charging a fee for their services, mortgage brokers usually get a commission from the lender when they arrange a transaction between the lender and a borrower.

What Is The Minimum Credit Score Required To Get A Mortgage In Canada?

Generally, the higher your credit score, the higher your chances of getting a mortgage (usually with a favourable interest rate).

Credit scores in Canada vary from 300 (poor) to 900 (excellent). A credit score of 660 would get you a mortgage with a decent interest rate. A credit score of 700, however, will get you favorable loan terms.

Personal Loan or Refinance Mortgage: What Choice is Best for You

Mortgage Document Checklist: What You Need Before Applying For A Mortgage In Canada

When applying for a mortgage in Canada, you must have all the necessary documents available, to save you a lot of time and energy. To help move things along quicker, below is an extensive mortgage document checklist of all the different items that you will need:

Government Identification

  • Government-Issued Photo ID: This will be used to confirm your legal status. It could be your driver’s license or passport.
  • Your SIN Number: This will be used to check your credit history and evaluate your financial background.

Employment and Income Verification

  • Recent Pay Stubs: Your most recent pay stubs will be used to verify the amount that you earn at your present job. This helps the lender to determine your ability to make monthly payments.
  • T1 General tax form: This signifies the collective income that the borrower made in the past year. It is used to establish their creditworthiness.
  • Notice of Assessment: This is usually issued by the Canada Revenue Agency (CRA) after you have successfully submitted your tax returns. It usually includes any outstanding taxes owed, and is used by lenders to determine your debt-to-income ratios. You will probably have to provide your NOAs for the two most recent tax years.
  • Letter of Employment: This helps the lender confirm your employment status and job title. The letter must state the duration of your employment at the company and the type of employment that you have (whether temporary or probationary, full-time or part-time, and so on). Also, it needs to be on company letterhead, signed by the manager or HR person writing you the letter, and it must not be older than 30 days.
  • T4 and T4A: A T4 will be issued to you yearly if you are a full-time, part-time, or seasonal employee. It will indicate the amount you get as an employee. However, a commission-only employee will be given a T4A which will be used to confirm their income.

Basic Financial Information

  • Credit score: This is usually used to determine your creditworthiness. Your credit score signifies to the lender your ability to manage your bills and debts. To get a mortgage, you will be required to have a credit score of at least 600.
  • Bank Account Information: This is used by lenders to deposit your initial mortgage lump sum, and eventually, to aid in the repayment of your mortgage. Your bank statements will be required to help establish your net worth and determine your total debts.
  • List of Assets and Investments: Ensure to disclose your existing assets to your lender before time. This will be used to determine your net worth and could end up getting you a mortgage with a lower interest rate.
  • Pre-approval letter: If you have been previously pre-approved for a mortgage, a mortgage pre-approval letter shows that you possess enough income and credit to meet the lending criteria. This could also get you a lower interest rate.

Down Payment

You will need to convince the lender that you have enough funds to cover your down payment, and you can use any of the following methods to do that:

  • A copy of the Agreement of Purchase and Sale for a current property that you want to sell so you can use its proceeds to purchase a new house.
  • A gift letter signed by either a friend or family member who wants to help you make the down payment.
  • A document showing how much you have saved from investments that you made in the past 90 days.

Details of the Property

Final purchase and sale agreement: After you have signed an agreement with the seller, you are required to show it to the lender, so they can know the final purchase price of the property.

Address of the property: This is the legal and official address of the property, including postal code.

Title insurance: You will also need to provide the property’s title insurance in Canada.

MLS Listing: This helps lenders to estimate property taxes, utility costs, and so on.

Homeowners insurance policy: You will be required to submit a copy of your homeowners insurance policy to your lender. It helps to ensure that the home is adequately protected.

In conclusion:

Besides knowing which property you would like to purchase, it is also important that you know and have the necessary documents that can help you secure a mortgage.

Documents/details such as Government Issued Photo ID, your SIN number, letter of employment, bank account information, T1 General tax form, T4 and T4A, title insurance, and so on, are part of the Mortgage Document Checklist: What you need before applying for a mortgage in Canada.

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