The mortgage credit application is a very important document as it’s the foundation on which the rest of the financing is built. This document is referred to when preparing the applicant for approval and used to determine what kind of supporting paperwork may be requested. This article isn’t about the strength of the application; instead, I want to clarify what information should be included to provide a potential lender with an accurate representation of your financial profile.
Your name and birthdate are used to order your credit report. Your social insurance number is requested too, but it is not mandatory. The purpose of this information is to ensure the correct credit report is provided by the credit reporting agency and your debts are accurately represented when calculating mortgage affordability. Your home address and employer details are also used as reference to ensure the correct credit report is being reviewed.
When it comes to your address, the important number is 3 because you need to provide a minimum 3-year history of the addresses where you have previously lived. If you are unsure if you should include an address where you only lived for a short time, include it anyways.
Employment and Income
It’s important to be as accurate as possible when it comes to disclosing your income amount as this information affects how much of a mortgage you can qualify for. Different calculations are used by the different lenders to determine your earning amount depending on your income type.
If you are employed, your qualifying income is your gross earnings before taxes and deductions. Whether you’re paid hourly or on salary, the amount you are guaranteed to be paid is the amount that should go on your application. If you are paid any overtime, shift premiums or bonuses, most lenders will look for a 2-year history of these types of earnings in order for them to be included in meeting their qualifying guidelines.
If you are self-employed, be prepared to provide your personal income tax returns and corresponding Notice of Assessments for the past 2 years. The income you have declared to the government and paid taxes on is the most commonly used amount when considering business-for-self earnings on an application, though there are exceptions with some lenders. If your personal income taxes have not been filed up to date, inform your mortgage professional before you enter an income amount on your credit application, further assessment will most likely be required to determine what the lender will consider as eligible income.
Debts and Assets
Most mortgage applications include a place for you to list all of your assets; those are items of ownership that can be easily converted to cash. If you’re wondering what to include in this section, here’s a short list on what most lenders will recognize:
- Investments (RRSP, TFSA, GIC, MUTUAL FUNDS)
- Vehicles including make and age
- Recreational Vehicles (ATV, Ski-doo, boats)
In addition to a space for assets, there is a section on every application for details of existing debts. This is where the borrower will provide all of their current debts which include credit limits and balances owing. This information is used to determine how much of the borrowers gross income is being used to pay current debts and what portion of their income is then available to cover the costs relating to the new mortgage. The credit report is also ordered to determine repayment habits, but the outstanding balances owing are not always up to date so mention if you have recently made any large repayments. The exact amount of total debts owing is important to ensure the borrower is getting a mortgage that is affordable for their present financial situation.
The asset and liability (debts) sections are used together to determine the net worth of a borrower. For a potential lender, positive net worth (assets –liabilities) presents a lower risk than negative net worth where debts are higher than the assets.
When a potential lender is determining if they want to approve a mortgage application, they want to know what other costs the borrower is responsible for. If you already own one or more properties and you intend to keep them, it’s important to disclose and confirm all costs related to each of those properties. Details such as the value of the property, as well as current mortgage balance owing, plus mortgage payment amount, annual property taxes, and condo fees (if applicable) will be required. The amount of rent collected will be required, along with copies of signed lease agreements and/or form T776 Schedule of Rentals from your personal income tax return may also be requested as rental income can be used to offset the costs relating to the properties.
I have noticed there is no standard format for a credit application that is used by everyone, rather, some are very short while others ask for everything but your blood type! The credit application is used to begin the mortgage process between the borrower and the mortgage professional as it must be determined exactly what supporting documentation will be required. If you believe there is information you have that could help you get approved for a mortgage and there’s no section on the application for it, tell your mortgage professional anyways. The more facts they have upfront, the more likely they will be able to successfully structure your application for mortgage financing approval.