What is the “Underwriting Process?”

When you are applying for a mortgage, it is the duty of your mortgage representative to collect all pertinent information from you, to confirm your needs and your requirements, and to ensure that all the information you are providing can be verified.

This of course will all be put together into a concise lending package that will allow an underwriter or decision maker to reach a sound credit decision on your mortgage application.

So what are underwriters looking for? They need to analyze your income, property, assets and credit. These are the four main pillars of the mortgage approval process.

Let’s have a closer look at the underwriting process.

Credit

To me, I put credit first. Whether you have poor credit or a perfect score, lenders will use this as a barometer to see where you fit and what lending programs are available to you. This will be checked very early in the process. Underwriters look at your credit report to determine how much debt you have compared to your income. The will also focus in on how you manage your debt and whether you have been making timely payments.

Income

I think income is the next most important part of the application. Lenders need to know how much income you have and how your income stream is set up. Are you on a guaranteed salary, hourly, commission, self-employed, full time, part time, pension, etc.

Depending on your income source, here are some examples of income documents required to facilitate a mortgage transaction

If you are a Salaried Employee – The following will be required:

  • Salary Letter to confirm your position, date of hire, annual base salary.
  • Provide your two (2) most recent pay stubs
  • If you earn income in addition to your base salary (Example: Over-Time, Shift Premiums, Bonuses, Commissions) we will require the last 2 years Notice of Assessments and/or T4’s to confirm this additional income

If your income is commission based – The following will be required:

  • Letter from your employer confirming your continued employment in commissioned sales and gross commissions earned year to date
  • Notice of Assessments – Provide last 2 years Notice of Assessments
  • If you are paid on an hourly basis – The following will be required:
  • Salary Letter to confirm your position, date of hire, hourly rate, and guaranteed minimum weekly hours.
  • Provide your two (2) most recent pay stubs
  • Last two (2) years T4’s from your employer.

If you are Self-Employed – The following will be required:

  • Notice of Assessments – Provide last 2 years Notice of Assessments
  • Confirmation of Self-Employment – Provide either Articles of Incorporation, or Master Business License
  • Full T1 Generals / Personal Tax Returns for last 2 years. Please provide FULL COPY, ALL PAGES
  • Last 2 years Financial Statements for Corporations
  • Last 2 years T4’s if your company is a Corporation

If you receive other types of income, or are non-income qualified, other documentation may be requested as well

Property

Obviously, lenders want to lend on good and marketable properties, as this is their security. Deals can and do fall apart on occasion due to the nature or condition of the property. In most cases, there is a home for a mortgage as different lenders have different guidelines and lend on different types of property. However, regardless of the property type, they want to ensure that the value is representative of what is on the application, that the property is in good state of repair or will be, and that the property is marketable in case of default.

Assets

To an extent, underwriters will also look at your assets and your net worth. Primarily, they want to determine that you have sufficient funds to make the required down payment on a property if you are purchasing. If you are refinancing, that you have sufficient equity in the property. And in both instances, that you have a positive net worth. They may also want to look at cash reserves in case your income stream gets disrupted for whatever reason.

Now that you have an idea of what your lender is looking for, here’s more information on the Financial Forum process. If you have any other questions about underwriting or any other part of the process, let us know in the comments, and we’ll be sure to answer them.

http://www.thefinancialforum.ca/refinance/the-forum-process/

Have any questions, need any advice? Visit us at www.thefinancialforum.ca. Email us at mortgages@thefinancialforum.ca. Call us at (905) 265-0246.

VERICO The Financial Forum Ltd.

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