The Best Rate… and Mortgage Basics
The following is pretty simple – you will get the lowest possible mortgage rate if you understand the basics and make the process easy.
Banks want to see that you’ve had the money for at least 90 days. How do you show this? Provide bank statements, print screens, etc of the account where the money is and make sure your name is on it so they know who the account belongs to. If you haven’t had the money for 90 days, have moved it around between accounts or have any large deposits within the 90 days, the bank is going to ask where it’s from and for proof. If it’s a gift, they’ll need a gift letter, which we’ll provide. They may even ask for account history for the person giving the gift. Are you the kind of person who keeps cash under their pillow? Get it in the bank. If you can’t legitimately provide the source of down payment, you may want to reconsider or delay buying.
This is simple, but people can unintentionally make it so difficult. If you have a job and you have guaranteed income, banks want a job letter and a recent pay stub. These days, it’s not uncommon to ask for a recent T4/NOA as well. If you’re on probation, wait until you’re off probation (typically 3 months) or set the completion date a couple of weeks after the probationary period has lifted and be certain that your company is going to keep you on. For pay stubs, don’t take them in cash and not deposit them into your bank account. That doesn’t work for the banks. They may accept a pay stub on its own or could also ask for a couple of month history of your pay deposits.
What if you have OT, bonus or are commission based? Banks will use this income, but only if you’re able to provide a 2 yr average of it from your T4s/NOAs. If you can’t, then we can only use your base income or no income at all in the case of 100% commission income.
What if you’re self employed? Then you will need to provide T1 Generals and NOAs for your last 2 years and the banks will use your line 150 income average. If your average declines in the most recent year by more than 20%, the bank will use the lower amount only and not an average. They’ll also ask for proof that you’re self employed depending on the structure of the deal. What if you grind your income down on personal taxes by way of expenses? These deals are commonly referred to as statement income deals. Essentially, they’ll accept income to be stated higher than what shows on line 150 of your personal returns so long as it’s both reasonable and provable. They may even ask to see your business financials, if applicable. If the company appears to be viable and turning a profit you have a good chance of getting a deal approved. Healthy retained earnings are important as well. If you are writing all your income down, have no cash in retained earnings, and are trying to state your income, this will be a hard deal.
If you own other properties, we have to factor in the respective mortgages (even if you’re just a co-signor). Some banks have property caps of 4-5 properties. If you exceed this, don’t expect to get the rates posted on our site. You’ll still get good rates, but only a couple of lenders will take on deals that exceed this property cap.
For documentation, banks will typically ask for copies of leases. Most are keen to see a fixed term tenancy as opposed to month to month. We’ll also need to see your mortgage statements and property tax statements. Some will go even further and ask for T1 Generals to see the rental breakdown on your taxes (assuming you claim it) and apply rental treatment accordingly. There are many different ways to apply the rental income to qualify for a mortgage, but the main thing is to make sure you have your paperwork organized and ready to go.
If you have bad credit, you’re not going to get the best rate. Bank’s have certain credit thresholds that determine the strength of your deal which is inevitably reflected in the rate. Having credit is important in getting a mortgage and how you use it is what determines your score. Obvious things that degrade credit are carrying persistently high balances on visas, credit lines, etc., not paying bills on time, seeking too much credit, etc.
These are some of the basics, but the general theme here is that a clean, organized deal will get the best rate. It’s that simple and how merit based lending works.