TWO YEAR HISTORY EXPLAINED
Get your 2 year history together.
You may have some questions that have come up in your mortgage research, we’d like to take a minute to clarify why you’ll hear the need to provide a two year history. This ties into two of the 5 C’s of credit a lender looks at when reviewing a mortgage application.
Character: As past behaviors predict future tendencies, lenders put weight on your past payment responsibilities, how long you have been employed and how long you have lived at your present address. The lender is looking for clients that show stability and reliability.
Capacity: Can you afford the payments along with other living and credit expenses? The lender wants to know if you can handle the debt, if you’ll be able to repay the mortgage loan.
On the mortgage application we are required to provide a history on where you’ve been living as well as working. The credit bureau (credit check) will support the history on where you’ve been living and supporting documentation that you supply will meet the employment history.
- Status – full time, part time, contract if hourly the number of guaranteed hours per week
If you are an hourly employee, commissioned or receive bonuses the lender will likely ask to see your last 2 years Notice of Assessments to support your income, the lender may take a two year average if there is a component of your income that is not guaranteed.
A business for self client is typically required to provide:
- Two years accountant prepared company financial statements and Notice of Assessments or
- Two years T1 generals, including statement of business activities and Notice of Assessment if sole proprietor
By providing the lender a two year history they are able to determine their risk level and make a decision to fund your mortgage.
In the crunch of writing an offer to purchase and negotiating, it can be stressful trying to pull this paperwork together. If you are considering purchasing a home, a best practice would be to request a pre-approval (so you know how much you could be shopping for) and get all of your paperwork in order.
Of course these are guidelines and are ‘typically’ what the lenders will require to satisfy the income criteria for a mortgage. This doesn’t mean the ball stops if you do not have this paperwork readily available – but it will sure make the process easier and less stressful for you if you do.
Not sure if you can meet the two year history requirement? Give our office a call and we will happily discuss your situation.