Each lender has their own set of procedures and protocols that they are following. See below for an overall summary of the procedure changes due to COVID-19 and income disruption.
Existing approval: (Clients who have already have an approval for a purchase, transfer or refinance who were fully employed, and have now been laid off or income has been reduced – after March 25th).
All lenders have informed us that this is truly case by case. It depends on the strength of the client profile. They will try to use other methods of employment confirmation such as: Using an average from previous 2 years, verifying with the employer that the employee will return to work on a certain date, company tenure, whether an employee is on contract or just started their job. The type of employment/industry is also taken into consideration.
- If the mortgage is insured, the mortgage insurer (CMHC, Genworth or Canada Guaranty)will have to approve the reduced income as well.
Every file where income has been disrupted or decreased will have to be reviewed by the lenders risk department to determine income viability and overall strength of the file.
Business for self:
For any application using self-employed income, in addition to standard income documents (2 year T1 Generals and Notice of Assessments), a description of the business, when established, number of employees, and its current status (e.g. operating, shut down) must be provided as well. Lenders may ask for the year-to-date income as well.
Some lenders are requiring that the source of the down payment for the 20% minimum for rental properties must be from the customer’s own resources. Borrowed funds secured against other assets (e.g. secured line of credit on a non-subject property), unsecured credit, or gifted funds cannot make up the first 20% of the down payment. These sources can only be used towards additional down payment in excess of the 20% minimum.
Rental income can no longer be verified using only a lease agreement. The following options are available for verifying rental income:
- Copy of lease(s) supported by 3 recent and consecutive months of bank account statements showing the rental income deposits to the customer’s account
- Appraiser’s Schedule A Market Rent Estimate / Statement of Rent in Appraisal (only on purchases)
- Notice of Assessment / CRA My Account Assessment (Proof of Income Statement) and T1 General including Statement of Real Estate Rentals for most recent tax year
Existing approval: (The mortgage was approved BEFORE March 25th)
If a borrower is experiencing income disruption (e.g temporary layoff) but still wants to proceed with the approval – Most lenders will maintain the approval if the following conditions are met:
- Borrower entered into a legal binding purchase and sale agreement and waived financing conditions as of March 25th, 2020
- Application was approved as of March 25th, 2020
- Closing date is on or before September 30th, 2020*
The reduced income will have to be used, unless borrowers have a return to work date. In that case, exceptions may be made by the lender, depending on the strength of the client profile, as mentioned. Employees must obtain their return to work date in writing. Again, this is case by case.
These will have to be based on CURRENT income.
Some lenders will not work on preapprovals at this time, and will only work on actual approvals with income documents upfront.
Full disclosure should be given upfront by the borrower to avoid a decline by the lender at a later time. Anyone making an offer with reduced income and looking for an exception to use full income should be putting in a finance condition to protect themselves. Reminder: All income documents are required upfront.
*These are the protocols for A-lenders, subprime lenders may be more unpredictable.
For any questions relating to mortgage updates, please contact Darlene Hanley of Hanley Mortgage Group