Canada’s housing market is competitive, with buyers competing to own their dream home. Therefore, it’s essential to put your best foot forward when house hunting. That means being prepared to move quickly and making you attractive to potential buyers. One way to do this is to know what documents are required for mortgage pre-approval with the help of our checklist.
Mortgage pre-approval involves submitting your financial information to a mortgage broker or financial institution. The institution will use that information to pre-approve you for a mortgage loan amount at a specific interest rate. Pre-approval is attractive to sellers because it signals you are likely to be fully approved for the purchase.
This mortgage pre-approval checklist can help you determine whether there are any red flags in your financial profile because you’ll need to submit a lot of documentation. Unfortunately, the amount of documentation you’ll need can be overwhelming at first — especially since you haven’t even found a home yet!
But even though there is a lot of paperwork involved in the process, pre-approval is worthwhile for its benefits. So, to make your pre-approval process a little more bearable, here’s what documents are required for mortgage pre-approval and a checklist.
What Documents are Required for Mortgage Pre-Approval?
We’ve broken up this mortgage pre-approval checklist into five sections:
- Identification
- Income
- Assets
- Debt
- Credit
Identification
What You’ll Need
- Photo ID (driver’s license or passport)
If you’ve never worked with this mortgage broker or financial institution, you’ll need some basic information, including a copy of your photo ID, to prove you are who you say you are. In addition, if you’re applying with someone else (your co-applicant), you must both submit a photo ID.
Income
What You’ll Need
- Recent pay stub
What You May Need
- Letter from your employer stating position, length of employment, and salary
- Proof of spousal support
- For self-employment income: two years of income tax returns
- For self-employment income: Two years of Notice of Assessments
One of the main determinants of how much mortgage you can afford is your income. With that in mind, you can expect your lender to ask you how much you make and ask you to provide proof of that income. Usually, you’ll need a pay stub showing your income, but occasionally, you’ll need additional information.
For example, your lender may ask for a letter from your employer confirming your title, how long you’ve been at your current job, and your salary. If you have income from sources other than employment, you must also provide documentation to secure mortgage pre-approval. For example, if you receive child support or spousal support, these amounts will need to be documented.
If you’re self-employed or earn money from a side hustle or freelance business, you must provide proof of that income. In most cases, you’ll need to provide two years of income tax returns that prove your income and two years of Notice of Assessment documents. The two-year requirement is to ensure your income is stable enough to cover a mortgage, and most lenders will use your average income between the two years.
Remember that all applicants for the mortgage need to provide income statements, including any co-signers.
Assets
What You’ll Need
- 90 days of printed bank statements verifying the amount and location of your down payment
What You May Need
- If your down payment is a gift, you may need the giver to sign a letter affirming this information
- Bank statements provide balances for assets like Registered Retirement Savings Plans, Tax-Free Savings Accounts, and non-registered accounts like chequing and savings accounts.
Another huge factor determining how much mortgage you can afford is your home’s down payment size. To help verify this, your lender may require you to submit bank statements showing the balance of your account where you keep your down payment. You don’t need to provide paper statements. Instead, you can save your account activity as a PDF.
If your down payment is in an RRSP, you may need to submit 90 days of statements to prove that you can withdraw that money under the Home Buyer’s Plan (HBP).
If a friend or family member has gifted a portion or all of your down payment, you may need to provide a letter signed by them affirming that the down payment is a gift, not a loan.
Finally, suppose your financial situation is less than ideal. In that case, your lender may ask for bank statements showing balances in your other accounts, including your chequing and savings accounts and registered accounts like TFSAs and RRSPs.
Debt
What You’ll Need
- A complete accounting of all existing debts
- A list of other financial obligations like spousal support or child support
What You May Need
- Payout documents for each loan indicating the balance remaining and monthly payment
While your income and down payment amount are essential factors in determining how much mortgage you can afford, debt also plays a role. A lending guideline uses the Total Debt Service (TDS) ratio. This guideline states that your total monthly debt obligation (your mortgage payment and other debt payments) can’t exceed 44% of your gross income. The more debt you have, the smaller the mortgage you can afford.
To verify your debt obligations, documents required for mortgage pre-approval include a complete accounting of all existing debts. This account should include debts like:
- Credit card balances
- Unpaid personal lines of credit
- Existing home equity line of credit balances
- Personal loans
- Student loans
- Car loans
- Department store financing
- Buy-now-pay later loans
- Unpaid property taxes
- Unpaid utility bills
Depending on the lender, you may also need to provide statements outlining the remaining balance of each debt and your monthly payment.
Credit
What You’ll Need
- Consent for the financial institution or mortgage broker to perform a hard inquiry into your credit
A final document your lender requires for mortgage pre-approval is consent to perform a hard credit check on your account. There are two types of credit checks: soft checks and hard checks. “Soft checks” do not impact your credit. On the other hand, lenders use hard checks to determine if you qualify for a loan (or mortgage), and this type of check will temporarily lower your credit score.
For this reason, you’ll need to consent to a hard credit score check.
Final Thoughts on What Documents Are Required for Mortgage Pre-Approval
While it’s tough to know what documents are required for mortgage pre-approval, a checklist can help. On top of this, the information that pre-approval gives you (how much mortgage you can afford and at what interest rate) is precious. In addition, pre-approval signals to your lender that you are ready to purchase a home, and your financing will likely be approved. So, it’s a win-win and worth the legwork.
