Canadian Mortgage Document Check List

Below is a basic list of the general underwriting guidelines and supporting documents that are required when you apply for a mortgage in Canada. We strive to make the mortgage process as simple as possible while also obtaining the best rates and terms available. Every situation is unique and required supporting documents can and do vary. Promptly providing required documents speeds up your application, approval and funding process. All information below is subject to change without notice, O.A.C., E.& O.E.

Subject Property

• Accepted Purchase & Sale Agreement (Offer To Purchase)
• Verification of the Purchase Deposit placed on the home
• Contact details of all realtors, builders, insurance agents and solicitors involved in the transaction
• Listing Sheet (Feature Sheet) and property legal description if available. If the property is strata please provide Strata By-laws, past 6 months Strata Minutes and most recent Annual General Meeting Minutes.

Applicant Income

Self-Employed Income

For conventional mortgages, a minimum 2 year history of self-employed earnings is required. Income must be verified by financial statements that were prepared by a professional, accredited accountant. T1 Generals and persoanl tax Notice of Assessments (NOAs) should be used to verify the income on the financial statements.

Commission Income

For conventional mortgages, commission income is verified regardless of the loan-to-value (LTV).  An average of 2 years income is used to qualify. The following documents should be obtained to support commission income:

• A Employment Letter that outlines the terms of the commission paid and the length of employment
• Year-to-Date Pay Stub
• 2 Years T4 Statements

Sole Proprietorships & Partnerships

Smaller businesses may not have complete or accountant prepared financial statements. In these cases, 2 years NOAs along with T1 General Tax Returns including all schedules will be used to confirm income.

Insured Mortgage Requirements for Self-Employed and Commission Income

For insured mortgages, the following requirements apply for both self-employed and commission income:

A minimum of 2 years history of self-employment can be documented through the following:

• Applicant's Notice of Assessment (NOA)
• Audited Financial Statements when available
• Financial Statements prepared by a professional accountant
• Applicant's T1 General Tax Returns

The actual income used for self-employed borrowers is calculated by either:

a) Obtaining the borrower’s last 2 years NOA’s and calculating the 2 year average from the amount shown on Line 150 and gross up the result by 15%

Or

b) Taking the 2 year average of the amount the calculation above and adding to this amount, the 2 year average of the following items as shown on the most current audited or accountant prepared Financial Statements and/or the T1 General Tax Return, Statement of Business Activities (T2124) or Statement of Professional Activities (T2032):

• Business-Use-of-Home Expenses
• Motor Vehicle Expenses
• Capital Cost Allowances

Salaried Employees

Typically, 100% of the client’s salary is used as income with the following documents available to support this income:

• Employment Letter - must be current within 30 days on company letter head (including full contact information i.e. address, phone, e-mail) and be signed and dated confirming salary, employment tenure, and position, and when applicable, overtime, bonuses, pending increases or car allowances should be documented in the letter.
• Pay Stub – must be current within 30 days and indicate the rate of pay, pay period, net and gross income, taxes and benefit deductions

For salaried borrowers where additional sources of income (above their employment salary) are used for the debt service assessment, the following requirements apply:

Overtime

Overtime may be used to qualify the borrower provided there is a proven track record and the opportunity for continued overtime exists for the future. At least a 2 year history should be used for conventional mortgages to show that additional income is likely to continue from this source.

For insured mortgages where the overtime income is needed to qualify the loan. If confirmed, 100% of the 2 year average from this source may be considered toward servicing the mortgage.

Car Allowance

A car allowance may be considered as income if it is an added “perk” of the job and a car is not needed to perform the job. Where a borrower must use a car to perform their job function, the car allowance cannot be used for mortgage servicing because it would then be a reimbursement of employment expenses rather than additional income.

Bonuses

Bonus income may be used to qualify the borrower provided there is a proven track record and the opportunity for continued bonus income exists in the future.  100% of bonus income may be used toward servicing the mortgage if there is a 2 year track record at the same or increasing levels for conventional loans.  2 year history is required for insured financing.

Hourly Employees:

For applicants paid on an hourly basis, a recent Pay Stub, Employemnt Letter and most recent Notice of Assessment(NOA) are the preferred documents to confirm applicant's income.

The Employment Letter must contain the following;

• The Weekly average hours worked
• The Hourly Rate
• Year-to-Date Earnings
• Employment tenure
• Applicant’s position

Furthermore, the Employment Letter should be on company letterhead and signed by a person in authority. It also must have been issued within the previous 30 days.

Seasonal Employment

For Conventional and Insured mortgaes, if employment is seasonal (e.g., construction, fishing, farming, etc.), the applicant's past 2 years T1 General Tax Returns and Notice of Assessments (NOAs) are required.

Employment Insurance (EI) payments are included only if they represent a typical cyclical income pattern that is likely to continue in the future.

Second or Part-time Job

If the borrower has two part-time jobs 100% of the income may be used provided the two part-time jobs reasonably equates to one full-time job. For example does it make sense for the type of employment (for example physiotherapy, fitness instructor, etc.)

If the borrower has a full-time job and also has a part-time job, the additional income can be included in debt service calculations if it has been consistent for at least 2 years and it is expected to continue.  In this case, 100% of the income may be used.

If permanent part-time employment is the borrower(s) primary employment, income can be used based on guaranteed hours. Where the applicant has had the job for 2 years or more, a 2 year average can be used.

Relative Employment

If the applicant is employed by a relative, the Employment Letter must be supported with current Pay Stubs (2-3) showing year-to-date earnings and most recent Notice of Assessment (NOA).

Handwritten Employment Letters

If an Employment Letter is handwritten for whatever reason, it must be supported with current Pay Stubs (2-3)showing year-to-date earnings and most recent Notice of Assessment (NOA).

Hand Written Pay Stubs

If a Pay Stub is hand written, additional documentation is required via 3 months Bank Statements with corresponding Pay Stubs to confirm deposits and/or most recent Notice of Assessment (NOA).

Gratuities (Tips)

Tips should not be used unless a 2 year history is provided showing the same or increasing amounts.

100% of income from this source claimed on T1 General Tax Returns may be considered.

Rental Income

Rental Income must be verified by a signed Lease Agreement(s). The Appraisal Report must indicate Market Rent and actual rent if the property is tenanted. The lesser of Market Rent or erified rental income must be used. Please note that T1 Generals and/or Bank Statements might be requested as an additional form of confirmation in addition to the Lease Agreement(s).

If the property is not yet rented, the Appraisal Report including the “schedule A”, indicating Market Rents for the subject property, is acceptable.

Alimony / Support Payments

Alimony and/or support payments can be used as qualifying income provided satisfactory proof has been obtained to confirm the payments have been made regularly for at least three years.  A copy of the Divorce Decree and/or Separation Agreement outlining the terms of the support payment is required with confirmation the income will remain regular for at least five years into the future

Child and Spousal Support Payments

On May 1, 1997, new guidelines became law and replaced the previous case-by-case method of determining child support, with a process that provides consistent, predictable and equitable awards. These new guidelines reflect the fact that child support payments payable under a court order or written agreement made on or after May 1, 1997, will neither be deductible from income by the payer, nor included in the income of the recipient.

Where a combination of child and spousal support payments are being made under a court order or written agreement made on or after May 1, 1997, the payments are considered to have been made first for child support and then for spousal support. Therefore, the spousal support payments will not be deductible to the payer nor included in the income of the recipient until the full child support payment that is subject to the new guidelines has been paid.

If spousal support payments are being made by the borrower, the amount should be deducted from gross income before the calculation of GDS/TDS.

Universal Child Care Benefit

Universal Child Care Benefit (UCCB) income may be used as a source of income for borrower’s qualification purposes for insured mortgages. However, considering this income is only available until the age of six, the underwriter and originator must use good judgment when using this source of income to assess serviceability. Income must be verified through one of the following:

• UCCB Statement
• RC62 (Statement of UCCB) provided by Canada Revenue Agency.
• Bank Statement showing automated deposits of UCCB.

Child Assistance/Child Tax Benefit Income

If the applicant's child is 12 or younger, the child assistance/child tax benefit income can be used for qualification purposes. The payment amount and the duration of the payment by obtaining the Canada Child Tax Benefit Annual notice and one of the following documents:

• Allowance Cheque Stub
• Personal T1 General Tax Return (it must confirm age of child/children)
• Bank Statement showing automated deposits.

Foster Care Income - Conventional Mortgages: Foster care income (no maximum number of children) can be used provided the following guidelines are followed:

• The lesser of, a 2 year average of foster care income or, last year's foster care income must be used.
• The caregiver must have at least three years experience as a foster parent.
• A letter from the agency confirming the length of time the applicant has been an approved foster parent and their current approved status must be on file.
• The property is a residential property.
• The applicant lives in the property being mortgaged.
• Proof of income is obtained via standard methods (i.e., Notice of Assessments, etc.).
• Maximum GDS/TDS Ratios are 30%/40%.

Foster Care Income - Insured Mortgages (CMHC): Foster care income (no maximum number of children) can be used provided the following guidelines are followed:

• A 2 year average foster care income will be considered
• The caregiver must have at least two years experience as a foster parent.
• A letter from the agency confirming the length of time the applicant has been an approved foster parent and their current approved status must be on file.
• The property is a residential property.
• The applicant lives in the property being insured.
• Proof of income is obtained.
• Maximum loan-to-value is 95%.
• Minimum down payment of 10% required when the foster care income accounts for more than half the applicant's total income, the maximum GDS/TDS ratios are 30% (including heat)/40%.

Parental Leave

For Conventional and CMHC loans where the applicant is on parental leave and intends to return to work upon completion of their leave, 100% of their salaried income can be used provided the following is met;

• Parental Leave does not exceed one year
• Borrower is salaried
• Borrower has a scheduled return date

Pension Income

Income must be validated by way of a T1 General Tax Return, supported by an NOA and/or bank statements showing the regular deposits.

Disability Income

If the borrower is receiving disability insurance income and the income is permanent the benefits may be utilized in accordance with the borrower’s disability insurance coverage.

Depending on the policy, the benefit may or may not be taxable (if non-taxable the income may be grossed up please reference the below gross up factors). A letter from the organization / insurance company outlining the benefits must be obtained with the corresponding deposits.

Non-Taxable Income

Borroowers who earn non-taxable income (e.g., Worker's Compensation benefits, disability income) may be eligible to have that income grossed-up when calculating Debt Service Ratios. This means that the value of the non-taxable income can be increased to qualify the borrower for the mortgage.

Required documents (two of the following):

• Pay Stub or Regular Income Statement
• Notice of Assessment (NOA)
• Letter from the payer of the income
• T5007 (for Worker's Compensation and social assistance payments)
• 3 months Bank Statements showing deposits

The non-taxable income must be confirmed to be likely to continue for the foreseeable future. Disability Income must be confirmed to be long-term, and provided by either a private insurer or government.

Gross Up Factors for Conventional Mortgages

Gross-up Factors for Insured Mortgages

Down Payment

Applicant(s) must be able to provide the minimum down payment from their own resources without borrowing. Product/program specific guidelines may differ from this general policy.
Minimum Equity

Insured Mortgages:

• Minimum 5% of the purchase price for fixed rate mortgages and ARMs. See product/program specific guidelines as they may differ from the aforementioned policy.

• Minimum 5% of the purchase price. The remainder of the total down payment of 20% can come from borrowed sources. Payments for those must be included in the debt service ratios.
• Own Resources/Legitimate Source

• Bona fide savings of the applicant
• Outright non repayable gift from relatives or employer
• Liquid/Other Assets
• Net Proceeds from the sale of property
• Bona Fide Savings of the Applicant
• Bank Statements, Passbook's or Internet Banking Statements must show savings accumulation over time (minimum 3 months history).
• The authenticity of recent large deposits must be confirmed.
• Ownership of Bank Statements, passbooks or internet print outs must be further confirmed where the name and account number are NOT clearly noted in the front of the passbook or on the Bank Statement or internet print out.

Additional Guidelines

• Deposits provided with the Purchase & Sale Agreement (Offer To Purchase): If this amount represents a large percentage of the total down payment, further confirmation will be required to ensure funds come from applicant's own resources.

Gift From Relative or Employer:

• Letter of confirmation verifying the gift is unencumbered and requires no re-payment.
• In addition to Gift Letter, verification that the funds are on deposit in the client's account prior to closing must be provided.

Liquid/Other Assets:

• Bonds, Securities, and Stocks. RRSP's may also be used, however if not part of the Home Buyer's Plan, may be subject to withholding tax.
• Copies of the applicant's Bank Statements from recognised Financial Institutions showing the description of the assets and the current value. Locked-In RRSPs that are not eligible for withdrawal under the Home Buyer Plan, cannot be used for down payment as they represent pension assets.

Net Proceeds from the Sale of Property:

• The Purchase & Sale Agreement and current (or Annual) Mortgage Statement, if applicable. The offer of sale must be unconditional (all subjects removed).
• Real Estate commissions, solicitor fees and other costs associated with the property sale must be considered when calculating the net equity or proceeds from the sale.

Closing Costs:
For some insured mortgage products and programs, the client must also provide confirmation of available cash reserves for closing costs equal to 1.5% of the purchase price. Closing costs may be borrowed provided the payments are included in debt service ratios and based on a maximum amortization of 12 months. See product/program specific guidelines as they may differ from the aforementioned.

The above information is subject to change without notice.

Guarantors:
Guarantors are accepted for income qualification purposes provided the Guarantor is also on title. If the guarantor occupies the property, the income will be considered for qualification purposes provided the guarantor is a direct family member. If the guarantor does not reside in the property, lenders will consider income for GDS/TDS calculation provided the guarantor is a direct family member and resides in the region where the property is located. Maximum LTV ratio is 95% in cases where the resident applicant's GDS/TDS <=40%/50%. Maximum LTV ratio is 90% in cases where the resident applicant's GDS/TDS>40%/50% and guarantor income and debts brings the GDS/TDS to 32%/40%.

Title:
Notwithstanding how title is taken (Joint Tenants vs. Tenants in Common lenders require all parties on title to be on the mortgage, and jointly and severally liable for the payment of the entire mortgage debt and the performance of all related obligations.

Title Insurance:
Canadian mortgage lenders require title insurance on all mortgages and this is a part of their instructions to the solicitor/closing service.

Debt Serviceability:
Maximum GDS/TDS Ratios:
(Based on the higher of the customer contract rate and/or Bank of Canada 5 Year Bench Mark Rate).

Maximum GDS/TDS:

• Where beacon < 680: GDS = 35%; TDS = 42%
• Where Beacon 680+: GDS = 39% TDS = 44%

***Individual Programs may have specific GDS/TDS requirements.***

The above information is subject to change without notice.