How to be Prepared for Your Pre-Approval

With 2020 now behind us, I think it’s safe to say, that many people are excited for the possibilities of what’s to come as we continue to move forward into 2021. While we know that the year behind us was filled with questions and uncertainties for many, the year did leave us with one very clear, positive message in the real estate industry. People are still buying houses!

This is great news and while no one can predict the future, it’s looking as though 2021 could shape up to be another record-breaking year of home sales across Canada. With historically low rates and what appears to be a good supply of inventory, it feels as though this could be a year of break thru for many Canadians wanting to obtain homeownership.

With that in mind, it’s important to know what to expect in the home financing approval process. While every lender differs just a bit on their rules, guidelines, and flexibility - there are still some general guidelines and documentation that buyers should be prepared for in advance, regardless of who the lender is. No two deals are alike, so the more prepared you are, the better your chances will be for approval.

Sometimes it can feel a little overwhelming and frustrating when you are asked for a plethora of documentation upfront. As a mortgage professional, I can empathize and understand that this can be a point of contention. What’s important to point out though, is that in addition to getting quicker approvals for having everything a lender may ask for upfront, this also allows me to do my job more thoroughly, giving you better chances for approval in the long run.

When first speaking with a mortgage specialist, most of us will start by asking about your employment. It’s crucial that we dig a little deeper than the surface with this question. It is incredibly important to know several key factors, such as; how long you have been at your position, with your employer, and in the industry. In addition, we will need to know how you are pay structured and if you are guaranteed FT hours or not. And if your hours fluctuate, it’s also very relevant information to know upfront. By asking these questions in advance, provides us the details we need to determine if we can use your income, and what documentation will be required for your employment within the pre-qualifying and underwriting process.

To give you a better idea of what to expect when deciding to pursue your home financing options, below you will find a breakdown of most documentation requirements, for the average mortgage applicant. While this is only a general guideline, it will definitely give you a good idea of what to expect in the home financing process. There will always be times when unique circumstances will call for additional information and details to be collected. However, these are the standard documents that should be required for each scenario.

Salaried/Full-Time 40 Hours- (Minimum one year required in the industry)
-Current Job letter & Pay stub
*The job letter must confirm: position, length of employment, salary or hourly rate and guarantee of full-time hours.

Business for Self (Incorporated or Sole Proprietor, a minimum of 2 years’ operating the business is required)
-The last 2 years of: business financials, personal T1 generals, personal notice of assessments
-Proof of no personal income taxes owning & proof of business ownership

Part-time or Casual Employees (without guarantees, 2 years consistently employed in the industry is required)
-Current Job letter, pay stub and last 2 years T4 slips and/or notice of assessments
*The job letter must confirm: position, length of employment & hourly rate

Fluctuating Income (2 consistently employed years in the industry required)
-Current Job letter, pay stub and last 2 years T4 slips and/or notice of assessments
*The job letter must confirm: position, length of employment & hourly rate

Pensions & Specialty Income (Pensions, support, special benefit payments, ect)
-Annual entitlement statement to confirm income, a lender may often also ask for 3 to 6 months of proof of deposits into your bank account.

DOWNPAYMENT
After assessing your income, if the mortgage professional believes that he or she can proceed with the application, we will then ask you about down payment. Down payment documentation is also very cut and dry, depending on which option you are using.

For any investment, RRSP, stock, savings or chequing account which holds any part of your down payment in it: a current dated 90-day bank history is required for that account. The account must be dated and have your name and the full 90 day look back clearly printed on the document.

Gifted Down Payment: A signed gift letter (provided to you buy the mortgage professional) is required by both parties. In addition, a bank statement is then required to show proof of the deposit of funds, along with the new bank account balance. This too, must be dated and have the accountholders name printed on the document.

Sale of Existing Home: A bonified sales contract and MLS listing of your existing home will be required. In addition, you will require a current mortgage statement, to confirm there is enough equity to use towards down payment.

Personal Sale Items- (Anything sold to use for the purpose of down payment) A bill of sale will be required. In addition, a bank statement is then required to show proof of the deposit of funds, along with the new bank account balance. This too, must be dated and have the account holder's name printed on the document.

Borrowed Down Payment - This is a specialty product that requires special approval. Once approved, proof of the loan repayment details is required.


OTHER DOCUMENTS
As you might have concluded from the above, employment and down payment make up the majority of what a standard mortgage approval might require for documentation. Of course, depending on your individual application, other items are/may still be required.

Here is a breakdown of some of the additional most commonly requested documents you will need:

- Accepted offer to purchase & MLS listing
- Current mortgage statements, property tax assessments for any owned personal or rental properties
- Current rental leases for any owned rental properties
- Void Cheque or PAD form
- Bankruptcy discharge documentation
- Child Support, spousal support & Divorce Orders
- Judgments or proof of collections & debts paid
- ID (driver’s license or passport)

Having this information at your fingertips now, while you’re are preparing in advance for homeownership, will undoubtedly save you time, and probably even a whole lot of frustration down the road. My job is to make the home financing process as easy and stress-free as possible and by preparing you for what to expect in advance, is in large part one of the easiest ways to do just that.

If you have any questions in regard to any of the information I have provided, please feel free to reach out. My hope is that whether your days, months or even years away from achieving your dream of homeownership, I will have helped you in that process, even in some small way. 

Katherine Meadows- Fugere- Red Deer Mortgage Lending, Owner/Mortgage Specialist