Getting pre-approved for a mortgage is a great way to smooth out the home buying process. Once you are pre-approved, you know exactly what your budget is and you can feel confident that you are making a choice that is within your means.
The key to having a straightforward pre-approval experience is to ensure that you are prepared with all the necessary paperwork.
The amount of documents that you need can seem intimidating, but it helps if you understand that each document serves a purpose: they all serve as pieces of evidence that prove your income stability to potential lenders.
The exact paperwork you need depend on your exact employment situation, but the basics are the same. If you review the following list, you will be ready to get your pre-approval in no time!
The documents required to apply for a mortgage pre-approval are:
#1 Letter of Employment: The letter of employment shows your lender that you have employment stability. Your letter of employment should be on company letterhead, and include details such as when you started working there, what your annual salary and/or hourly wages are, and your guaranteed hours/week if applicable. If it’s a newer position, they need to know if you are on probation. Your manager or HR department will be able to provide you with this letter upon request.
#2 Previous Two Pay Stubs: You will also be required to submit 2 paystubs from the work periods immediately preceding the application. These need to include your name, the company name, and the amount that you paid in deductions. They are used to verify the information stated on your letter of employment.
#3 3-Month (90 day) Bank Account History: Lenders will want to see at least 90 days’ worth of bank statements showing how you have save up for your down payment over time. If you have received the money for your down payment from the sale of a house or car, or received it as a gift from your family, the lender will require sales documents or a letter as backup for this claim.
#4 Notice of Assessment from Canada Revenue Agency: This is another document that verifies the information in your employment letter and further confirms your income history. Copies can be found online via the CRA online portal or requested by mail. If you do request by mail, it typically takes 4-6 weeks to arrive.
**Note: If you are employed Part-time, you will be required to provide the notice of assessment for the previous three years. You will also be required to have worked in that position for at least two years for the income to qualify.
#5 The T4 from the Previous Year: Lenders require you to also submit your T4 from the previous year in order to verify your income.
#6 Supporting Documents for Additional Income: Child Support, Long-term disability payments, EI, part-time or rental income are all considered additional income that can be considered regarding your mortgage pre-approval, and the supporting documents will be required.
#7 Divorce or Separation agreement: If you are paying child support following a divorce or separation, documents detailing the exact amount will also be required. Some lenders will additionally request a statutory declaration from your lawyer.
Documents for Self-Employed Individuals:
Most of the same documents are required as proof of income for self-employed people, but the details are slightly different:
#1 3-Month (90 day) Bank Account History: Just like full-time employees, self employed individuals will be required to show 90 days history of bank statements detailing the fund that will be used for the down payment.
#2 T1 Generals: The Income Tax and Benefit Return is the income document Self-employed people use to prepare their taxes.
#3 Statement of Business Activities: This document includes the financial statements for your business and outlines your income versus expenses.
#4 Notice of Assessment from Canada Revenue Agency: Unlike full-time employees, self employed individuals are required to provide the previous three years of assessments.
#5 Incorporation Licence/Articles of Incorporation: These documents are required only if applicable.
Taking the time to research and prepare all these documents will save you a lot of time and headache in the future. Once you have acquired all the necessary paperwork, you can start focusing on the most important part of the whole process: Purchasing your new home.
It’s normal to feel intimidated by this process, I am more than happy to answer all your questions and help you make the best decisions for your unique financial situation, so that you can feel confident at every stage of your home buying process!