When I bought a small one-bedroom condo after settling in a small town during the pandemic, I thought I had already passed the biggest hurdle: being able to afford property in the first place.
What I didn’t expect was how all-encompassing the financing process can be. My financial documents aren’t complicated, but the sheer amount of paperwork to prove your financial life caught me off guard and nearly derailed my financing, as I dealt with delays getting answers from my mortgage provider for questions about the procedures. Eventually, my mortgage was locked in at the last minute, just before my financing condition on the sale was about to expire.
Turns out my situation wasn’t even that complex. Mortgage broker Darren Lacy recalls one instance where he accumulated a mountainous 80 pages and an Excel spreadsheet to detail one couple’s financial history in order for them to secure financing for a home.
The Ajax-based broker said his clients had a messy financial life: each person had three bank accounts, separate family members gifting money for their down payment, and were constantly transferring large sums of money between their bank accounts.
For most people, the documents required by mortgage providers aren’t usually that much of a headache, but they can still look intimidating if you’re not expecting it. Preparing ahead of time can make the process as simple as possible.
Mortgage providers are required by the Canadian government to collect documentation that proves individuals aren’t involved in money laundering or funding a terrorist organization when a home is purchased.
Depending on the mortgage provider, that can mean a whole slew of detailed bank statements to account for any money transfers of as little as $1,000, as in Mr. Lacy’s case.
So what should a buyer have ready to go even before they reach a deal to buy a home? Mr. Lacy says the minimum requirements will be three months of bank statements for all parties that provided money used toward the down payment. You’ll need two years of employment history, with your income verified by T4s and two recent paystubs from your current employer.
And if you’re receiving a financial gift from a family member toward your down payment, you’ll need gift letters and bank statements related to those monies as well. He adds that in his experience, lenders other than the big five banks may have more stringent interpretations of the rules and require more paperwork.
Doesn’t sound too bad, but imagine learning about these details while you’re under a deadline to confirm financing. Or trying to reach out to HR departments for multiple former employers when you can’t figure out how to access T4s yourself (I tried the Canada Revenue Agency, but its documents didn’t have my name attached). Or calling your technology-challenged mom to try and explain how to download three months of bank statements to prove she isn’t laundering the money she graciously helped you out with. Not an ideal addition to your to-do list.
None of it is objectively hard, but the time ticking away is very much felt when you’re trying to land a mortgage in a rush.
In the end, I ended up with more than a dozen pages of bank statements, despite only having one bank account, one investment account and one parent’s bank account needed on my file. That’s on top of all the other documents proving my income, and endless e-mails from my mortgage agent telling me all the ways I screwed up with missing information.
Mr. Lacy says you can mitigate piles of paperwork by speaking to a mortgage specialist very early in your search for a home.
There are all sorts of names for the steps before a mortgage is fully approved: prequalifications, preapprovals and conditional approvals. The key is that you should speak with someone who has seen documents on your financial life before you make an offer on a home in order to give you some peace of mind.
All too often, Mr. Lacy hears from clients who only did online quizzes to determine the mortgage amount they’d qualify for.
“My god, you’re making the biggest purchase of your life and you only spent a couple minutes telling if you can do it? That’s insane,” said Mr. Lacy. He added that a short conversation with a bank over the phone won’t help either, because the representatives are generally just spitting numbers into an algorithm to give an estimate, as if you’re applying for a credit card.
“Our conversation should be at least half an hour, and I should collect documentation and you should know what the impact of each piece of documentation will be to your situation.”
Today, I’m happy with the mortgage and rate I ended up with, but I do wish I went with a mortgage broker. I dealt with awful customer service after going with a provider with bargain rates, and wasted days waiting for responses to questions or trying to deal with buggy online-only application systems.
My biggest mistakes, however, were failing to educate myself on the financing process and thinking that the hardest part of buying a home was done once I reached a deal.
Mr. Lacy says my lackadaisical attitude is unfortunately common, but it can be easily remedied: start your search early and have a frank discussion with some sort of mortgage professional to set your expectations.
1. Speak to a mortgage specialist months before you start bidding so you can understand how to prepare and what closing will be like
2. Prepare paperwork such as T4s, employment letters and bank statements ahead of time
3. Try to keep your financial life as simple as possible and keep finances in one account. If you’re receiving a gift, get it all in one transfer, rather than multiple e-mail money transfers that can lead to more paperwork.
4. If you’re struggling, having your real estate agent and mortgage broker work together can help take some of the pressure off you.