Get your docs in a row before applying for a mortgage

Fictional couple John and Ishrat are in my office, determined to get a mortgage pre-approval letter. They end up receiving a mix of good news and bad news.

The good news is that, if the numbers they have provided are correct, they will be able to purchase a home for as much as $591,000. The bad news is that John, who is self-employed and works in construction, hasn't filed his income tax returns for three years.

John's homework is to play catch up, as the bank will need to reference some key documents in order to determine how much income to include in the mortgage pre-approval application.

The following documents are required as proof of income for self employed applicants:

• CRA notice of assessment for the most recent tax year
  
• T1 General for the two most recent tax years

Since they want to bid for a condo soon, John accepts that he has to move quickly.

Ishrat has changed jobs in the past year. She's working full time for an accounting firm. Since she has been working at a salaried position but has been with the company for less than two years, when she applies for the mortage she will need to provide the following:

• a letter from the employer
  
• the most recent paystub (or account showing 90 days of payroll deposits)
  
• most recent T4 or CRA notice of assessment for the most recent tax year

If Ishrat had been with the company for two years or more, she would require different documentation, as follows:

• the most recent paystub (or account showing 90 days of payroll deposits)
  
• most recent and previous year's T4 or CRA notice of assessment

I was able provide more good news. Ishrat's credit score is 710 and John's is 690. They will need to maintain or improve these scores going forward. Credit scores below 680 can be considered risky when applying for a mortgage. I advised them to not apply for any credit in the next few months and to keep paying all their bills early or on time. If both John and Ishrat had risky credit scores, they would likely need a co-signer.

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Susan Williams is a Mortgage Development Manager with National Bank of Canada. Email: susan.williams@nbc.ca Twitter: @YMJourney