realtylinkonline

April 6, 2001
Loan of a lifetime - What you need when qualifying for a mortgage

With interest rates dropping lower and lower and housing prices still considered a 'buyers market', many potential first time homeowners may be wondering what is required when getting a mortgage. Buying a home is the biggest investment most people make.  It's important to be prepared and knowledgeable of the process.

Whether you go to your financial institution or to a personal mortgage consultant, most of the same information will be required of you.

Personal information

1. This includes; name, age, marital status, dependants, social insurance number.
2. Balance of checking and savings accounts with the address of your financial institution or institutions.
3. Credit card account numbers with current balance (Visa, MasterCard, American Express, The Bay etc.).
4. Stocks, bonds, mutual funds or RRSP value
5. List of any outstanding debts and the remaining balance.  This includes student loans, car loans or any other personal loan.
6. List of assets such as a car(s), furniture, etc. and the estimated value of each.
7. Confirmation of employment: job letter on employers letterhead showing position, length of employment, amount of gross income and future prospects.
8. Confirmation of income: two years T-4 slips OR page of Tax Returns that shows your income and one current pay stub. Written confirmation of other income being used to support this application (suite or rental income, spousal support, and government pensions).
9. If self employed: three year income statements and balance sheets, three year Revenue Canada Assessments and three year tax filings (T1 general).
   

Qualification

Qualification of your mortgage involves the determination of two ratios.  These are GDS (gross debt service) and TDS (total debt service). GDS compares monthly housing expenses to personal monthly income.  TDS compares all monthly debt payments (loans, car payments, credit cards, housing debt, etc) to personal monthly income.  To qualify, your GDS should be 32% of your monthly income or below and TDS should be 40% or below.

Processing

The processing will involve verification of all the information given. A credit report will be pulled to view current and past credit rating. All the necessary documentation is gathered and sent to the underwriter of the mortgage.

Underwriting

Underwriting is the evaluation of the loan to make sure it fits the requirements needed.  The information looked at is the property being purchased including its value (after an appraisal).  The qualifying ratios (GDS & TDS) will be determined to make sure they fit the loan requirements and the credit report will be looked at to see the history of credit performance.  The underwriter will then either approve or deny the loan that has been requested.

Closing

After the mortgage loan is approved, the closing documents will be prepared, signed and recorded by a lawyer.  The funds will then be properly disbursed and accounted for when the closing is completed.