Investor Binder Preparation Guide

Building an investor binder will help ensure a smooth process when applying for a mortgage.

Lender Required Documents

When it comes to your income, a lender will want to know:

• How much you earn and how it is calculated (salary, hourly, commission, etc.)
• How long you’ve been with your current employer or running your own business
• How many years you’ve worked in that industry

Document List

Employed: Job letter, T4s from the previous two years, last year’s notice of assessment (NOA).

Sole proprietorship or partnership: T1 generals from the previous two years with the statement of business activities, corresponding notice of assessments, and six months’ bank statements.

Incorporated: T1 generals from the previous two years, audited financial statements, T2 Corporate income tax returns and notice of assessments, articles of incorporation.

Rent: Current leases and at least 1 of the following: rent rolls, six-month account statements showing rental deposits or previous year’s T1 general.

Down Payment:

Unlike purchasing a home you plan to live in, an investment property requires a minimum down payment of 20%. Down payment for investment properties must also come from your sources; gifted down payments* are prohibited.

*Gifted down payments: A friend or family member donates the down payments and can prove they have a standing relationship with you.

Sources Of Down Payment:

• Savings/investments
• Borrowed down payment (i.e. Mortgage refinance, home equity line of credit (HELOC) or reverse mortgage)
• Reverse mortgage
• Joint venture partners*

*Joint venture partners offer the opportunity to purchase an investment property with other people’s money. Becoming a real estate expert may allow you to leverage your knowledge to invest other people’s money and share in the returns. A joint venture in real estate involves two or more parties combining resources for a specific development or investment. The joint venture parties maintain their business identity while working together to complete a deal.

In a joint venture, responsibilities can be assigned in whatever way is needed for the particular project. The profits can be split however you want, as all parties agree.

Assets & Liabilities:

All mortgage lenders require a breakdown of your net worth when you apply. Net worth is made up of assets and liabilities, or everything you own and everything you owe.

Assets

Assets are everything you own, including properties, investments, savings, vehicles, etc. If you have a significant art or jewelry collection, this may also be included in the asset portion of your application.

Liabilities

Liabilities are everything you owe, including mortgages, personal loans, lines of credit, car leases, etc. In addition to what and how much you owe, lenders will want to know how much your payments are and the frequency they are to be paid (weekly, bi-weekly, monthly). This will help calculate the ratio of your total liabilities to your income, which will be required to determine your ability to repay your mortgage.

Including a detailed breakdown of your current net worth in your investment binder and keeping it up to date will help ensure a smooth transaction. For savings, investments and other liquid assets, include a recent account statement to prove the funds exist and belong to you.

Credit:

As in any lending decision, your credit will be a significant deciding factor. Credit is a measure of risk and is based on your ability to handle debt in the past. The higher your credit score, the lower your risk of default, which will increase the likelihood of approval and give you access to the most beneficial mortgage options available.

Credit is based on five factors:

• Payment History 35%: Making timely payments has the most considerable positive effect on your credit.
• Credit Utilization 30%: Keeping your balances below 30% of your limits has a net positive effect on your credit score.
• Types of Credit 15%: What kinds of debt do you hold (car loan, credit card, line of credit…), and is it a single type or diversified one?
• Length of history 10%: Your credit score will increase the longer you have established credit. If you have established credit for less than two years, you will find it harder to qualify for a mortgage at specific lenders.
• Credit Checks 10%: Making up a small portion of your score, the number of times you have your credit checked by a debt provider can negatively impact your score if you frequently look for different types of financing.

Regularly checking your credit bureau can help ensure accurate reporting and help you spot any inaccuracies. Keeping an up-to-date report in your investment binder will help us make a preliminary assess your borrowing capacity without making a ‘hard check’ of your credit.

To better understand your financial situation before purchasing your next investment property, feel free to reach out and book an appointment with me today!