You just heard those reassuring words “You are approved!” but this isn’t the end of the journey. You and your mortgage agent must stay focused and ensure all the lender’s mortgage conditions are met well in advance of your closing date.
If you are refinancing a mortgage, you should allow at least a month for the process, a stark contrast to the once-speedy two-week turnarounds. There were times when we could close a deal in under a week during urgent situations.
For those who are purchasing a new home, a crucial deadline looms ten business days before the closing date. Failure to meet all stipulated conditions by this point might result in some lenders refusing to close the deal on the scheduled day.
Nearly every mortgage commitment mandates that borrowers verify their income and employment status. In the past, a job letter and recent paystub sufficed. Nowadays, lenders are extra cautious, leaving no room for false or exaggerated information on your application. They also place great importance on the stability of your income and employment.
What might lenders require to satisfy mortgage conditions?
Here are the common documents needed depending on the status and your type of employment.
For traditionally employed individuals, these would include:
- A recent pay stub.
- A bank account activity statement from the last three months, demonstrating regular payroll deposits.
- Notices of Assessment from the Canada Revenue Agency for the past two years.
- T4’s forms from your employer for the last years.
- A letter from your employer, on official letterhead, detailing your position, start date, full-time or part-time status, and compensation.
For self-employed individuals, the requirements can be even more extensive:
- Personal tax returns (T1 General) from the past two years
- Notices of Assessment for the past two years
- Corporate financial statements, tax returns, and NOAs for the past two years (if applicable)
- Business bank account statements spanning three to twelve months of activity
- Proof of your self-employed status, typically in the form of a Master Business License or Articles of Incorporation.
It’s important to note that these requirements are just to satisfy one condition—namely, income and employment confirmation. If your income is derived from other sources, like rental income, alimony, or child care benefits, to name a few, you can bet lenders will require documentation to confirm and verify.
What about other common mortgage conditions?
- If you have an existing mortgage or have co-signed for someone else, you need to prove current balances and provide mortgage/property details.
- Proof that you don’t owe any money to CRA.
- Most mortgages require a full appraisal.
- Proof of your down payment source—when buying a home, you must show where your down payment and closing costs originated, typically requiring three months of account history.
- Proof that you’ve paid off certain credit balances or unpaid collections if required.
- Condo status certificate, if applicable.
In summary, hearing the reassuring words “You are approved!” isn’t the end of the journey. Perhaps it’s the beginning of a new one, of documentation and verification. Be prepared for possible last-minute conditions from lenders, as navigating this process can be quite challenging. While the increasing amount of paperwork seems daunting, do not fret, this is an industry shift as lenders exercise caution.