Unlocking Your First Home: Tips to Get the Bank to Say YES

Buying your first home is a stressful process in itself. Securing financing is a paramount part of purchasing real estate for most people. Use this checklist as a general guideline to have all your documentation in order.

Remember, when purchasing residential (especially for your primary residence), the lender often emphasizes the actual property. The emphasis is on whether YOU as the BORROWER are CAPABLE of maintaining payments. The bank is protecting their asset (the loan) and YOU have to PROVE to them that you are an appropriate candidate for that loan.

This is where having the necessary and supplementary documentation (see the list below) in place is crucial to showcasing that you are a suitable applicant. After all, YOU are applying for this loan

‘A mortgage is NOT a loan on your house, it is a loan on your INCOME…… SECURED by your house.’ - Ron Caruthers

Necessary Documentation

Income Verification

If you are Self Employed

✅ Previous two years Income Tax Notice of Assessments (NOA) and/or T4 Statements (if less than two years)

✅ Previous two years' corporate financial statements

✅ Draft corporate/personal statement from an accountant for the current year to provide an estimate of projected earnings

If you are a Salaried Employee

✅ Previous two years Income Tax Notice of Assessments (NOA) and/or T4 Statements (if less than two years)

✅ Letter of Employment (LOE)- including length of employment, salary amount/wage per hour, full-time vs part-time. Have it on official company letterhead with proper contact information

✅ Recent Pay Stub (likely need more than one to verify)

Where is the Source of the Down Payment?

✅ Bank Account Statements (typically 90days of proof with the proper format- official statements, not just screenshots)

✅ Follow-up documentation to justify any large transactions

✅ Liquid Assets- RRSP, TFSA, Non-Registered Fund statements

Supplementary Documents

✅ Net Worth Statement (assets - liabilities, but you already knew that, as you’ve been reading my blogs for a while by now…. right?)

✅ Copy of your credit report- I use Credit Karma. Yes, when a lender pulls your credit it will have a small negative temporary effect on your credit score.

✅ If you have a co-signer, please ensure you have similar documentation for that person.

**If applying as a coupe and one party has purchased a home before and the other hasn't, please have on hand property tax bills, mortgage statements, and information of any liens against the property (if applicable)

This is not an exhaustive list of documentation required. Each lender will have its own guidelines for documentation and it will be your responsibility to source those documents.

Understanding Mortgage Pre-Approval vs. Pre-Qualification

• Pre-Qualification: An initial assessment of how much you might borrow.

• Pre-Approval: A thorough evaluation of your finances, providing a conditional loan amount.

Types of Mortgages

• Fixed-Rate Mortgages: Consistent interest rates throughout the term.

• Adjustable-Rate Mortgages (ARMs): Interest rates that change based on market conditions.

• Interest-Only Mortgages: Initial payments cover only interest.

• FHA Loans (US): Government-backed loans for first-time buyers with lower credit scores.

• CMHC Insured Mortgages (Canada): For buyers with less than 20% down payment.

Loan Programs and Assistance

• First-Time Home Buyer Programs: Lower down payments and tax credits.

• Down Payment Assistance Programs: Grants or loans to aid with down payments and closing costs.

Importance of Credit Score

• Impact: Higher scores secure better interest rates and terms.

• Improvement Strategies: Ways to boost your score before applying.

Understanding Closing Costs

• What Are Closing Costs?: Fees associated with finalizing a real estate transaction. (i.e appraisal fees, title insurance, inspection fees, attorney fees).

Mortgage Insurance

• Private Mortgage Insurance (PMI) (US): Required for down payments less than 20%.

• Mortgage Loan Insurance (CMHC) (Canada): Required for similar down payments.

Practical Tips for a Smooth Application Process

• Stable Employment: Lenders prefer a consistent job history.

• Avoid Large Purchases: They can affect your debt-to-income ratio.

• Stay Organized: Keep all necessary documents accessible.

Additional Considerations for Healthcare Professionals

• Loan Forgiveness Programs: Specific to healthcare professionals.

• Income Fluctuations: Addressing periods of lower income due to residency or fellowship.

Understanding Mortgages:

Employee vs. Self-Employed

Let's look at two examples to illustrate the mortgage process for an employee in the US and a self-employed individual in Canada.

Example 1: Emily - Salaried Employee in the US

Emily is a 30-year-old physical therapist working full-time at a clinic in California. She's looking to buy her first home with a purchase price of $400,000. Here’s what she needs:

• Income Verification: Emily provides her last two years of Income Tax Returns (1040 forms) showing an annual income of $80,000 and W-2 statements.

• Employment Verification: She obtains a Letter of Employment (LOE) from her clinic, confirming her $80,000 annual salary and three years of employment.

• Recent Pay Stubs: She submits her last three pay stubs, each showing a bi-weekly income of $3,076.

• Down Payment Proof: Emily includes bank statements showing $60,000 saved for a 15% down payment and justifies a $20,000 gift from her parents.

• Credit Report: Emily pulls her credit report from Credit Karma, showing a score of 740.

Emily secures a 30-year fixed-rate mortgage at 5% interest, with a monthly payment of approximately $1,834 (excluding taxes and insurance). She is pre-approved based on her steady income and strong credit score.

Example 2: Robert - Self-Employed Physiotherapist in Canada

Robert is a 32-year-old who owns his physiotherapy practice in Toronto. He’s looking to buy his first home with a purchase price of CAD 600,000. Here’s what he needs:

• Income Verification: Robert provides his last two years of Income Tax NOAs showing an annual income of CAD 90,000 and corporate financial statements.

• Current Year Earnings: He includes a draft statement from his accountant estimating his current year's earnings at CAD 95,000.

• Down Payment Proof: Robert provides 90 days of official bank statements showing CAD 120,000 saved for a 20% down payment and justifies a CAD 10,000 transfer from his business account.

• Credit Report: He includes his credit report from Equifax, showing a score of 720.

• Supplementary Documents: Robert submits a detailed net worth statement and documentation for his co-signer, his brother.

Robert opts for a 25-year CMHC insured mortgage at 5.5% interest, with a monthly payment of approximately CAD 2,705 (excluding taxes and insurance). His lender evaluates his business’s stability and projected income to pre-approve his mortgage.

Both Emily and Robert successfully navigate the mortgage process, tailored to their employment status and country-specific requirements. By understanding the necessary documentation and preparing thoroughly, securing a mortgage becomes a smoother journey, whether you're a salaried employee or self-employed

If you're interested in learning more about getting your financial house in order and how to set up your financial life, please register for the live beginner course or the recorded beginner course.