This is a crucial tool in being able to move quickly and get your properties financed. Whether you are doing this by yourself, with a spouse, or you are helping a Joint Venture Partner to put together this package. It is the key ingredient that will help make things happen for you.
This package is how you will present yourself to the lender. I will explain the various components in the package, and why they are important. I will then give you a blank template at the end of this module, that will help you to create your own package.
You must complete your own package before you move on to the next module in this course. You can use this template to get you started and going quickly –> Financing Binder Template
All your information in one place so that it is easy for lenders to get in touch with you, or the lawyer of your transaction. This also includes the key personal information that your lenders will need.
This is a summary of why you want to get approved, plans for future purchases, terms and conditions of the mortgage, and what you would like the lender to be able to look at. One major component of this page to give the lender an idea of the future business that you could potentially bring to the lender by doing business with you on this transaction. You are also conveying the message that you are goal directed, and have an understanding of the terms that lenders use all the time.
Table of Contents
This is pretty obvious. It is just an outline of your binder so that your lender can quickly find the materials that they are looking for.
Section One – Overview
In this section, the lender will get a good sense of your balance sheet, monthly cash flow, as well as your assets and liabilities. This gives them an opportunity to get a good idea of who you are and if they are able to lend to you or not. This section is very important because it is something that you can send by itself to lenders in order for them to give you an answer, whether they can lend to you or not. All the other sections in this binder helps to reinforce and prove the numbers in section one.
If the overview sectionis the most important section then your consolidated balance sheet is the most important part of that section. This is where you give a current snapshot of all your assets and liabilities. You are then able to break down your assets into each of the major components which might include deposits, investments both registered and unregistered, pension with its commuted value, and your real estate portfolio. You would also include any other assets like cars or business equipment. Your liabilities would include any mortgages that are associated with your real estate portfolio, investment loans as well as any credit card, line of credit,, or secured line of credit debt. When you subtract the liabilities from all your assets you get your net worth.
On an aside,, if you want to learn anything about your personal wealth creation keep track of your net worth statement. Not just your income. You want to see your net worth statement grow over time. If you haven’t picked up the book by Keith Cameron Smith called The Top 10 Distinctions Between M<illionaires and the Middle Class then you should. It speaks specifically to this point.
Your personal cash flow summary gives the lender an idea of how much you are spending each month and how much you are making. The income sources that you can include will depend on you. This could be in employment or business income, income from investments, dividend income, income from second mortgages that you lent out, even GST refunds or child care tax benefits.. The expenses that you include should cover all the major components of your household and include any loans that you use for consumer items like a car. Finally you should have a section that includes discretionary spending so that you can show to a lender how much is left over at the end of the month. This is an extremely useful exercise even if you’re not using it to borrow funds.. Just being able to all layout your monthly cash flow leads to interesting discussions and opportunities for you to make changes in order to save money.
Your investment portfolio summary should include any investments both registered like TFSA or RRSPs, pension amounts,, RESP,, as well as individual stocks bonds GICs or whatever else that you are invested in. It allows the lender to see the types of assets that they could possibly use as security, as well as opportunities for you to use as a possible down payment for the property.
Make sure to include as many details as possible for your real estate assets. You will want to include how much equity you have in the property, estimated current value, and rents for the property. You will also want to include a few details about the assets which might include full or partial ownership of the assets. An example would be a joint venture partner. You will notice in the image below they are is key at the bottom of the page which indicates whether names are on title or on mortgage and a particular partner’s name associated with the property. This may not be necessary depending on the lender that you’re dealing with.make sure to discuss this with your mortgage broker or agent..
Your credit status indicates where and the type of credit cards, lines of credit account,s secured by the credit, that you have. It indicates the current balance and your monthly obligations. This will assist your lender when looking at your total debt service ratio.
Your real estate liabilities gives your lender a snapshot of how you have structured the mortgages on your current principal residence, your rental properties, or secondary residence. This includes the first second or any other financing that you have on these properties. You would include the amount that is currently owed as well as your monthly payment. Like your credit status your real estate liabilities summary helps your lender to determine your total debt service ratio.
This section for your down payment verification specifically relates to the property that you want to purchase. You are going to include where you plan to get the funds for the down payment. If you are going to get your funds from a joint venture partner then you are going to want to ensure that those funds are in your account at least 90 days before you start to seek funding for the mortgage.
This section relates specifically to verifying where you are getting your income from. If you are getting it from an employer then you will need to provide 2 to 3 pay stubs in addition to a letter of employment. You may also be required to provide your two most recent notice of assessments. Be prepared, you may also be asked to provide soft copy of your T-1 General tax form.
The Property Verification section includes information that supports your property portfolio. This includes any mortgage statements that you have, property tax statements, current lease agreements, and impact statements which include property values for tax assessment purposes. All of these need to be included in to your financing binder and updated periodically.
I must admit that I usually skip this section when I’m submitting a mortgage application usually the the information that is included here would come once an agreement has been accepted. The sales history report and other information would be provided to an appraiser. If there is any section that you’re going to skip it would be this if you are just preparing an initial financing binder for a mortgage professional.