The Mortgage Kit
Start with proof of your income.
We’ve all heard the Scout motto “Be prepared”. It’s great advice if you need a mortgage. Assembling everything your lender needs to verify your income is a critical component of mortgage success. A last-minute scramble for documents just adds to stress. Get a Mortgage Kit folder ready and begin collecting the verification you will need for your income type:
- FULL-TIME SALARY: Provide a recent pay stub and a “letter of employment” on company letterhead that confirms a) your position, b) your annual salary, and c) the length of time you’ve been in your position. If you’re a fairly new employee, lenders will want to know that your probationary period is over. And they will follow up. Commissions and bonuses can be supported by your last two notices of tax assessments.
- COMMISSION, CONTRACT, PART-TIME AND SEASONAL EMPLOYMENT:Company letter and paystub are required. Income must be consistent and can be proven with a two-year average of tax assessments or T4s. If the position is contract, a copy of the contract and any renewals is required.
- SELF-EMPLOYED: Assemble a) two years of tax assessments, b) business license or registration, or articles of incorporation, c) your T1 general tax returns for the last two years, OR the last two years of accountant-prepared financial statements (if incorporated). Lenders recognize that self-employed income is kept low, so some expenses on your statement of business activities can be added back. If income is difficult to prove, be sure to have a strong credit history and downpayment.
- CHILD SUPPORT: A copy of the separation/divorce agreement and three to six months bank statements are typically required. This income should be less than 30% of total income.
- DISABILITY: A letter confirming permanent status along with a paystub.
- MATERNITY LEAVE: Some lenders use full employment income if the employment letter confirms a return date within one year.
- PENSION, RRIF, INVESTMENT INCOME: Most recent tax assessment, T4As for pension income. There must be sufficient funds in the investment for the income withdrawal.
If you are fully prepared, then you’re always ready to take advantage of opportunities!
TAX TIP: $750 tax incentive for first-time buyers
Did you buy your first home last year? You may be able to take advantage of the Home Buyers Tax Credit (HBTC) when you file your tax return. The $5,000 non-refundable HBTC provides up to $750 in federal tax relief. You qualify if neither you nor your spouse (or common-law partner) have owned and lived in another home for the past five years. For more information, visit www.actionplan.gc.ca/en/initiative/first-time-home-buyers-tax-credit.
New downpayment rules went into effect February 15: for any portion of a house price over $500,000, buyers now need to provide 10 per cent downpayment for an insured mortgage. The minimum downpayment for the first $500,000 remains at 5 per cent.
Source: Pauline Strauss, Mortgage Associate - Invis