Covenant Underwriting

Property Ownership

Sagen will permit title to property to be registered as “Tenancy in Common” or “Joint Tenancy”. Notwithstanding how title is taken, Sagen requires all parties on title to be on the mortgage and liable for payment of the entire mortgage amount and the performance of all related obligations.

Citizenship

To be eligible for Sagen mortgage insurance all applicants must be Canadian citizens or have permanent residency. Individuals that do not possess either of these designations may still be eligible for mortgage insurance subject to meeting Sagen’s New to Canada Program requirements (Borrowers must not be prohibited from purchasing a property under the “Prohibition on the Purchase of Residential Property by Non-Canadians Act”). Additional details can be found in Product Specific Underwriting Guidelines – New to Canada Program.

Guarantors and Non-Residing Co-borrowers

Sagen will accept guarantors and non-residing co-borrowers for qualification purposes under the following conditions:

• Must be one of the following direct family members: father, mother, child, brother, sister, grandparent, legal guardian, or legal dependent.
• The guarantor or non-residing co borrower’s debts must be included in the TDSR.
• The guarantor or non-residing co-borrower must meet product requirements.

Guarantees must be valid and fully enforceable in the event of default and must survive any amendments or renewal to the mortgage. Lenders must consider applicable provincial or territorial laws when ensuring the validity or enforceability of a guarantee, including allowing guarantors the opportunity to receive independent legal advice.

Employment and Income

On all applications, Lenders must make reasonable inquiries and take steps to obtain third -party verification of each borrower’s and guarantor’s income, inclusive of confirmation of employment status and tenure. As part of this assessment, the Lender must verify income and employment of the borrower to ensure income is stable, continuous, and sufficient to repay the mortgage as well as other debts.

While the following section provides examples for confirming income, the list is not exhaustive. Other sources for confirming income and employment that have not been listed may still be acceptable. In the absence of Sagen guidance on a specific topic related to income and employment, the Lender may apply its own lending practices and procedures subject to reasonableness and prudency in line with industry best practices. A detailed description of the specific document and/or requirements as indicated by the endnote can be found at the end of this section.

Fixed Income

Fixed income is received at regular intervals and set at an established amount that does not fluctuate.

• Examples of fixed income include: salaried full-time wage income, long term benefits, part-time income with guaranteed hours. For individuals with non-arm’s length employment (employed by family or a relative), also obtain the most recent 2 years Notice of Assessments⁴ and accompanying T1 Generals⁵
• Fixed income is to be confirmed using primary and secondary sources as outlined below:

Primary Source	Secondary Source
Obtain 1 of the following: Current Letter of Employment3* A recent paystub1 2 months of direct deposit2 history	Obtain 1 of the following: Previous year-end paystub1 Most recent T46 Most recent Notice of Assessment (“NOA”)4
If either of the following combinations are obtained, verification from a secondary source is not required: A Letter of Employment3 and a paystub1 A Letter of Employment3 and 2 months of direct deposit2 history

*It is recommended verbal confirmation of an applicant’s employment is also obtained.

Pension Income

If Received from an Employer	If Received from a public Source (Examples of a public source include: CPP or OAS)
Income is to be verified with 2 of the following: Most recent NOA4 Recent account statements showing 3 months of consecutive receipt Most recent pension stub/pension statement showing the pension amount Most recent T4A6 Letter from previous employer/pension administrator stating pension amount	Income is to be verified with 1 of the following: Most recent NOA4 Recent account statement showing at least 1 deposit Most recent pension stub/pension statement Most recent T4A6

Support Income

Examples of support income include: Child support, spousal support

• The income should be continuous as outlined in the court order, separation or divorce agreement.
• The history of the support should be related to the amount of the support that is used for qualifying purposes
  • If the support represents greater than 50% of the total qualifying income the file is to be referred to a Sagen underwriter.
• Support income is to be confirmed using primary and secondary sources as outlined below:

Primary Source	Secondary Source
Obtain 1 of the following: Court order Divorce agreement Separation agreement	Obtain 1 of the following: The most recent NOA4 Recent account statements demonstrating the specified payment(s) have been received as scheduled

• If the Lender is unable to obtain the above noted documentation, the Lender’s file is expected to have detailed notes supporting their rationale to proceed as well as reference to any documentation that was reviewed that satisfied the inclusion of this
• When an applicant is responsible for paying child or spousal support, the amount of the payment is to be included in the TDSR.

Variable Income

Variable income is income received at inconsistent intervals and may fluctuate over subsequent pay periods. Given the inconsistency in income, the Lender must obtain a minimum 2-year history.

• Examples of variable income include: Overtime, bonus, tips, seasonal income, casual income with non-guaranteed hours, contract, investment income, secondary employment, part-time income with non-guaranteed hours, commission income, and self-employed income.
• The following guidelines are to be applied for treatment of variable income:
  • Must have been received for a minimum of 2 years.
  • The lesser of the previous year’s income or a 2-year average income to be used for qualification purposes.
    • In the event the most recent full years income is <20% from the average, the average income may be used.
    • The most recent year’s income may be used provided there is a year over year increase for at least 4 years, subject to Lender disclosure and reasonability of the increases.
• Variable income is to be confirmed using primary and secondary sources as outlined below:

Primary Source	Secondary Source
Obtain 1 of the following: Paystub1 Current Letter of Employment3*	Obtain 2 of the following (or any relevant combination) to support income for the past  2 years: NOA4 T4 6 / T4A6 Previous year end paystub1

* It is recommended verbal confirmation of an applicant’s income is also obtained.

Self-Employed Income

Any individual who has an ownership interest in a company and is paid based on company performance, whose ownership interest is 25% or greater is considered to be self-employed.

Examples of self-employed include: sole proprietorships, partnerships, and limited or incorporated companies.

Applicants must meet the following criteria:

• The business has been in existence for at least 2 years and the applicant has been self-employed with that business for a minimum of 2 years;
• The business is viable and can be expected to support the applicant’s income level over time; and independent verification of financial information is available.

To confirm self-employed income (all programs excluding Business For Self (Alt. A) Program), obtain the following :

• Most recent 2 years Notice of Assessments⁴ and accompanying T1 Generals⁵;
• Most recent Notice of Assessment⁴ to confirm no income tax arrears. In the province of Quebec, both federal and provincial NOA’s are required.
• The following guidelines are to be applied for treatment of self-employed income:
  • Must have been received for a minimum of 2 years.
  • The lesser of the previous year’s income or 2 year average income will be used for qualification purpose.
  • The most recent year’s income may be used provided there is a year over year increase for at least 4 years, subject to Lender disclosure and reasonability of the increases.
• The Lender may perform further due diligence to confirm business tenure and ownership through third-party sources such as:
  • Confirmation via public business registry
  • Business license
  • Business contracts supported by bank statements
  • Corporate website
  • Articles of Incorporation
  • Audited financial statements
  • Goods and Service Tax (“GST”) returns
• Self-employed income from sole proprietorships or partnerships may be grossed up by 15% for qualification purposes:
  • The 15% gross-up should be applied to line 15000 of the T1 General or NOA. If line 15000 includes other income not related to self-employed income, it is to be deducted from line 15000 before applying the 15% gross-up.
  • An “add back” approach for these incomes may also be used (in lieu of the 15% gross up) for business-use-of-home, motor vehicle expense, and capital cost allowance deductions.
• For self-employed applicants using stated income to qualify, refer to Product Specific Underwriting Guidelines – Business For Self (Alt. A) Program.

Investment Income

• Examples of investment income include: dividend income, interest income, and registered retirement income fund.
• Income should be expected to continue for the life of the mortgage based on the value of the asset.
• Investment income is to be confirmed using primary and secondary sources as outlined below:

Primary Source	Secondary Source
Obtain the following: Most recent investment statement	Obtain 2 of the following (or any relevant combination) to support income for the past  2 years: T55 T4RIF6 NOA4 with accompanying T1 Generals5

Parental Leave

• Obtain income documents from primary and secondary sources as indicated for either fixed or variable income as indicated earlier in this chapter.
  • As a secondary source, verbal confirmation from employer confirming applicant’s employment is also acceptable
• Written confirmation is to be obtained from the applicant’s employer indicating the return date, and the salary/income level.
• 100% of the return to work income may be used to qualify, regardless of return to work date.

Foreign Sources

• Income must be declared and taxed in Canada and converted to Canadian currency where applicable.
• Income is to be confirmed using primary and secondary sources as outlined below:

Primary Method	Secondary Method
Obtain 1 of the Following: Paystub1 Current Letter of Employment3*	Obtain the following: NOA4 for past 2 years with accompanying  T1 Generals5

*It is recommended verbal confirmation of an applicant’s employment is also obtained.

Seasonal Workers

• Obtain income documents from primary and secondary sources as indicated for variable income.
• 100% of Employment Insurance (“E.I.”) income will be recognized for qualification purposes.
• 70% of the income must come from the salary paid by the company and no more than 30% should come from E.I.

Income Gross Up for Non-Taxable Income

For borrowers whose income is not taxed at the source as defined by the Canada Revenue Agency (“CRA”), the income may be grossed up as follows:

Non-taxable income < $30,000	Non-taxable income > $30,000
25%	35%

Documents that can be obtained to support this income include the following:

• Recent paystub¹ or recent account statement
• Most recent Notice of Assessment⁴
• T5007⁷

Other Types of Income

Professional Athletes	Copy of existing contract stating terms of employment and salary. Only the base income is to be used when calculating debt service ratios.
Trust Income	The trust agreement should be irrevocable.  Income should be sufficient and likely to continue throughout the life of the mortgage. Statement must confirm the amount and frequency of payments.
Foster Children	100% of eligible foster parent income will be considered subject to acceptable underwriting assessment and the following requirements: Caregivers must have at least 2 years of experience as foster parents. Letter of income; or contract from the Ministry responsible for foster care and a pay stub; or a minimum of two months’ direct deposit are the only acceptable forms of proof Foster Children of income. Lender must have a letter from government social services confirming the tenure of the applicants and current approved status. Foster care income deemed non-taxable by the CRA may be grossed up as per the non-taxable income guideline (refer to Income Gross Up for Non-Taxable Income). Maximum number of children in care should not normally exceed six (including any of their own children). Any more children than this typically requires that the house be modified from a standard floor plan. Applicants must be the owner and occupy the subject property. If foster care in come accounts for more than 50% of the applicants’ total income, a minimum 10% down payment is required.
Car Allowances	Car allowance may be used to offset car loan or car lease payments under the following circumstances: Car allowance is a taxable benefit. Applicant has been receiving the car allowance for a minimum of one year and it is likely to continue.
Cost of Living Adjustment by Employer	Must be verified in writing by the employer that the payments should continue for at least 3 years 3 year average is to be used if the letter states any reductions over the duration of the living adjustment Payments should be added to gross income when qualifying and not used to offset the mortgage payment.
Probation Period for New Employees	Applicants are to be qualified based on the Lender’s probation policy.  Lender is to conduct due diligence as required by their internal policy and should be based on applicant’s employment background and job type.
Canada Child Benefit (CCB)	CCB income to be confirmed via one of the following: most recent Canada Child Benefit Notice, or, 2 months direct deposit2 history Income stream should not represent greater than 30% of the total qualifying income Income stream should be continuous for a minimum of 3 years.
Disability income	Long-term disability income may be used provided a confirmation letter is obtained. Short-term disability income may be used subject to a letter from the employer confirming the following: Disability income will be received provided the applicant is unable to work and borrower will return to their previous employment when able. Examples include but are not limited to: Assured Income for the Severely Handicapped (AISH), Ontario Disability Support Program (ODSP), Persons with Disabilities benefit (PWD), Persons with Persistent and Multiple Barriers to employment benefits (PPMB), Saskatchewan Assured Income for Disability (SAID), Québec Pension Plan (QPP), The Disability Support Program (DSP)

Rental Income

Subject Properties: Owner Occupied (2 units) and properties submitted under the Investment Property Program:

• Sagen will accept 100% of the rental income subject to:
  • Each applicant having a minimum credit score of 680.
  • Income to be validated using signed lease agreements or fair market rent from an appraisal.
  • Where rental income is confirmed via fair market rent from an appraisal Lenders should apply a market vacancy rate in accordance with their internal policy.
• If the above credit and income requirements cannot be met, 50% of rental income is to be used for qualification.
• Taxes and heat are to remain excluded from the debt service ratio calculation.
• Total Debt Service Ratio (TDSR) Calculation:

TDSR=\frac{Principal\, + \,Interest\, + \,50\%\,Condo\,Fees\,(if\,applicable)\,+\,Other\,Debts}{Gross\,Annual\,Income\,+\,\%\,of\,Gross\,Rents}

*If applicable, additional fees include: 50% of condominium fees, 100% of ground rent, or 50% of Home Owner Association Fees.

• Properties must be in compliance of zoning and applicable by-laws and regulations.*
• Lender is required to obtain a General Assignment of Rents and Leases.
• Rental amounts used are the lesser of actual rents as confirmed by signed lease agreements or fair market rents provided by an appraiser.
• *Rental income from unauthorized suite may be reviewed on a case-by-case basis.

Subject Properties – Owner Occupied 3 and 4 Units:

• Lenders may use their existing policy to calculate net rental income. At a minimum, operating expenses must include mortgage interest, maintenance, and vacancy.
• Net rental income surplus may be added to the gross annual income.
• Net rental income shortfall may be deducted from the applicant’s gross annual income or added to debt servicing.

Non-Subject Investment Properties:

• Lenders may use their existing policy to calculate net rental income. At a minimum, operating expenses must include mortgage interest, maintenance, and vacancy.
• Net rental income surplus may be added to the gross annual income.
• Net rental income shortfall may be deducted from the applicant’s gross annual income or added to debt servicing.

Non-Subject Owner Occupied Properties:

• Lenders may user either:
  • Their existing policy to calculate net rental income, or,
  • 50% of rental income may be used for qualification (taxes and heat may be excluded).

Unacceptable Sources of Income

Some sources of income are ineligible due to a lack of stability and/or consistency. Some examples of these incomes include, but are not limited to:

• Social Assistance
• Employment Insurance (excluding paternal leave benefits and seasonal workers)
• Boarder income

Supporting Information for Documentation Fulfillment

In all cases, inconsistencies between the documentation and information on the loan application are expected to be addressed in the Lenders underwriting file with all accompanying rationale for proceeding.

Documents, where applicable, should be dated no more than 60 days prior to the date of the application for mortgage insurance. Documents older than 60 days (eg., CRA documents outside the current tax year) are acceptable provided there is a reasonable and documented explanation and in line with the Lender’s internal underwriting policy.

Document		Description
1	Paystub	Age of Document: Should be the most current year -to-date. If applicable, previous year end paystub for borrowers with variable income
		Required Detail: Employer’s name Borrower’s name Most recent pay amount Year-to-date earnings. The indicated pay period should: Align with year-to-date earnings. Supports the amount used to calculate the debt service ratios.
2	Direct Deposit	Age of Document: Statements should show direct deposits within 60 days of the mortgage insurance application received date.
		Required Detail: Confirmation the applicant is the owner of the account. Confirmation deposits show the employer.
3	Employment Letter	Required Detail: Employer’s name (On company letterhead, dated and signed by appropriate authority). Borrower’s name, length of employment, date of hire and position. Employment Gross annual earnings (if paid hourly, the rate and normal hours worked per week). Employment status
		Verbal Verification: Confirmation should include the name, contact and position of the individual verifying the information and; Verification should be initiated by the Lender and the contact number used must be verified using an independent source.

The following information can be used as a guide for documents obtained from Canada Revenue Agency (“CRA”).

Document		Description
4	NOA	Notice of Assessment Proof of income statement (option ‘C’ print) may be used as an alternative to the NOA.
		If the borrower’s income is comprised of multiple components, the corresponding T1 General should also be obtained to determine the breakdown of the income and whether it is from a fixed or variable source.
5	T1 General	Income Tax and Benefit Return
6	T4	Statement of Remuneration Paid
	T4A	Statement of Pension, Retirement, Annuity, and Other T4A Income
	T4A(OAS)	Statement of Old Age Security
	T4A(P)	Statement of Canada Pension Plan Benefits
	T4E	Statement of Employment Insurance and Other Benefits
	T4RIF	Statement of Income from a Registered Retirement Income Fund
7	T5	Statement of Investment Income
	T5007	Statement of Benefits (workers compensation)

Equity

The amount of the equity/down payment is calculated by deducting the mortgage amount from the purchase price. The Lender must ensure the equity is from an acceptable source and can be verified through documentation which will be retained in the Lender’s file. Some examples of equity sources are listed below, however, should an equity source not be included in this list the Lender should defer to their internal policy for acceptability.

Cash (Savings or Investments)

A minimum of 3 months account statements should be obtained to confirm the length of time the funds have been in the borrower’s account. It is the Lender’s responsibility to verify the source of large lump-sum deposits.

Gifts

The giftor must be an individual who is connected to the borrower through a close familial or legal relationship motivated only by the need to assist the borrower in purchasing a home and not through any financial interest to the property.

The gift letter must verify:

• Date and relationship to the borrower (examples of an eligible giftor include but are not limited to father, mother, child, brother, sister, grandparent, legal guardian, or legal dependent); and
• Dollar amount of gift and indicate that gift is non-repayable; and
• The source of funds must be verified in the donor’s or borrower’s account.

RRSP

Funds from an existing RRSP

• Withdrawal of funds from the applicants accumulated RRSP funds to be used for down payment.
• Repayment not required in TDSR.

Borrowed funds for RRSP and use the tax refund for down payment

• After 90 days, the RRSP is collapsed and the loan is repaid in full.
• Lender must verify that the borrower has received the tax refund prior to closing.
• Repayment not included in TDSR, Lender is to ensure the loan is repaid.

Borrowed funds for RRSP and use the plan funds for down payment

• After 90 days, the RRSP is collapsed but the loan is not repaid in full.
• Establish a repayment plan which will not exceed 7 years.
• The total loan repayment must be included in the borrower’s TDSR.
• Applications are to be submitted under the Borrowed Down Payment program

Sweat Equity

Labour invested in improvements that result in an increase to a property’s value is known as sweat eq uity. When sweat equity is being used, the borrowers must apply at least 5% from their own resources as down payment.

The amount of the sweat equity must not exceed the amount supplied by the borrower and no other incentives can be combined with this source of downpayment.

• Eligible properties:
  • New construction only
  • Maximum 2 units
  • Must be owner-occupied.
• Applications must be referred to a Sagen underwriter for review and must indicate the type of work being completed, the amount of the sweat equity, and the associated labour cost.
• Lender must confirm the work is being completed by licensed trades people.

Rent-to-Own

• The Rent-to-Own agreement must be verified by the Lender with a signed agreement prior to the start date of the lease.
• Only the amount exceeding the fair market rent may be applied towards the down payment.
• The amount of fair market rents must be obtained from a full appraisal.
• All applications where a rent-to-own agreement has been used for the down payment should be referred to a Sagen underwriter for further review.

Borrowed Funds

• Equity borrowed from any source that is arm’s length to the purchase transaction, including: personal loans, lines of credit, or credit cards. Repayment amounts must be included in the TDSR calculation.
• For 90.01 –95% LTV, applicants must meet requirements for the Sagen Borrowed Down Payment Program. For additional details refer to Product Specific Underwriting Guidelines – Borrowed Down Payment Program.

Proceeds from Sale of an Existing Property

• Equity from real estate that has been sold must be verified by the Lender via an accepted Offer to Purchase and either a mortgage payout statement, a mortgage discharge statement, or mortgage balance obtained from a recent credit bureau.
• Allowances should be made for repayment of existing mortgages, real estate commissions, and any other discharge costs.
• Bridge loans are an acceptable source of down payment provided the term does not exceed 90 days from the date the mortgage was advanced to purchase the property that is the subject of the mortgage insurance.
  • The following documents are required:
    • A fully executed Agreement of Purchase and Sale for the existing property; and
    • Bridge Loan Agreement.

Employer Relocation Allowance

• Must be part of the borrower’s compensation package and unconditional.
• The Lender is to confirm the amount is non-repayable.

Government Grants/Affordable Housing Programs

These are an acceptable form of down payment provided the applicant is approved for the program prior to applying for mortgage insurance. In addition:

• The Government grant or affordable housing program must be approved by Sagen.
• Any loan repayment must be included in the TDSR calculation.
• Applications must be referred to a Sagen underwriter for review and the Lender’s notes should indicate the down payment is from a Government grant/affordable housing program as well as the name of the applicable program

Interest Rates

The following interest rate types are eligible for Sagen mortgage insurance:

• Fixed Interest Rates – The interest rate does not change for the duration of the mortgage term.
• Variable Interest Rates – The interest rate generally fluctuates with the Lender’s prime rate. Sagen permits the following types of variable rates mortgages:

Standard Variable-Rate Mortgage (“Standard VRM”)

• Fluctuating interest rate with a constant payment during the term.
• For non-capped VRM, the designated amount (trigger point) is 105% of the original gross principal amount. If the loan amount exceeds the designated amount, as described above, Sagen offers the mortgagor the following options:
  • Increase the amount of each regular payment under the mortgage in order to amortize the mortgage over the remaining amortization period.
  • Reduce the total amount of the loan amount then owing by making a lump sum payment to reduce the total amount to a point below the designated amount.
  • Convert the mortgage to a Fixed-Rate Mortgage with equal monthly payments.

Capped Variable-Rate Mortgage (“Capped VRM”)

• A consistent payment during the term that is set at the capped rate, with an interest rate that fluctuates but only up to the capped rate.
• For capped VRM, the principal and interest payments are either calculated at the capped rate or at the contract rate (with the principal and interest payments being recalculated whenever the interest rate changes). This ensures the loan will amortize over the agreed term.

Adjustable-Rate Mortgage (“ARM”)

• Both the interest rate and payment vary concurrently during the term subject to two options:
  • Option A –The mortgage payment is adjusted to cover both principal and interest to maintain the amortization schedule when the interest rate increases; or
  • Option B –The mortgage payment is adjusted to ensure the interest is paid when the interest rate increases until the term renewal, at which point the payment is adjusted to maintain the amortization schedule
• Conversion – Sagen allows conversion from a fixed-rate mortgage to a variable-rate mortgage at time of renewal provided :
  • The loan is in good standing and presently insured by Sagen.
  • The loan amount is not increased and continues to amortize in accordance with the amortization schedule approved by Sagen.

Debt Servicing

All applications submitted for Sagen mortgage insurance must not exceed the debt service ratio limits as outlined in the product requirements. See Product Specific Underwriting Guidelines for details. Additionally, all supporting documentation the Lender has referenced to calculate the debt service ratios must be retained in the Lender’s file.

Gross Debt Service Ratio (“GDSR”)

The Lender must evaluate the borrower’s capacity to repay the mortgage loan and related housing costs over the indicated term using the GDSR which includes:

• Mortgage principal and interest payments (based on the qualifying interest rate)
• Property taxes
• Heating costs
• If applicable:
  • 50% of condo fees
  • 100% of ground rent when the property is leasehold
  • 50% of homeowner association fees (“HOA”)
    • Must be subordinate and postponed to the insured mortgage.

GDSR Calculation:
\frac{Mortgage\; Payment\,+\,Property\;Taxes\,+\,Heating\;Costs\,+\,Additional\;Fees*}{Gross\;Annual\;Income}

*If applicable, additional fees include: 50% of condominium fees, 100% of ground rent, or 50% HOA fees.

Qualifying Interest Rate

All insured homebuyers must qualify for mortgage financing using an interest rate that is the greater of their contract mortgage rate plus 2% or 5.25%.

All applications submitted for mortgage insurance are subject to the qualifying interest rate in effect as of the date of submission and will be used to determine the mortgage principal and interest payments for qualification purposes.

• The minimum qualifying rate is subject to review and periodic adjustment by the Government of Canada. Upon notification of a change, the mortgage insurers will communicate the new minimum qualifying rate.

Property Taxes and Condo Fees

The Lender should obtain confirmation of the amount of the property taxes and condo fees (if applicable). Examples of documents that may verify these amounts are: property listing, municipal records, tax bill, the builder’s estimate, or an appraisal. When this information cannot reasonably be obtained, as an alternative the Lender may use a calculation as outlined in their internal underwriting guidelines. The calculated amount should be reasonable for the municipality where the property is located. For properties in Quebec, the combined total of the property taxes and school taxes should be submitted as the property tax amount.

Sagen will also accept provincially sponsored subsidies or grants reducing property taxes subject to:

1. the subsidy or grant is unconditional and
2. there is a reasonable expectation the rebate will continue.

Heating Costs

Sagen will accept the heating cost provided by the Lender subject to reasonable attempts being made to obtain the actual amount. Examples of documents that may verify this amount are: the builder’s estimate, the property listing, or a previous utility bill. When this information cannot be reasonably obtained, the Lender may apply a calculation as outlined in their internal underwriting guidelines.

Total Debt Service Ratio (“TDSR”)

The Lender must evaluate the borrower’s capacity to repay the mortgage loan as well as all other debt obligations over the indicated term using the Total Debt Service Ratio (“TDSR”) calculation. Payments to be applied in the TDSR are outlined below:

Debt Type	Payment Amount Applied in TDSR Calculation
Unsecured Credit (Lines of Credit, Credit Cards, etc.)	Greater of 3% of the outstanding balance or the minimum payment is to be used.
Secured Lines of Credit	At least a monthly payment based on the outstanding balance amortized over 25 years using the contract rate (if the contract rate is unknown or if a variable rate of interest applies). Should the contract rate not be available (or if a variable interest rate), the 5-year benchmark rate as determined by the Bank of Canada is to be used.
Unsecured Student Lines of Credit	If the amortization and term is known, the payment outlined in the agreement is to be used. If the amortization and term is not known, a payment in accordance with the Lender’s internal guidelines is to be used.
Child support and spousal support payments	The monthly payment amount outlined in the separation agreement.
Installment loan payments	The monthly payment amount outlined in the loan agreement, orin the absence of the loan agreement, the payment indicated on the credit bureau.
Closing Costs	The Lender is to ensure the applicant has the resources to accommodate all closing costs for the mortgage transaction. If the resources that have been used for the closing costs are borrowed, the Lender is to account for the repayment of these Closing Costs funds in the debt servicing ratios. When this information cannot be reasonably obtained, the Lender may apply a proxy provided it is appropriately documented in the for the industry.
Other Mortgages (for non-subject property)	The monthly mortgage amount confirmed through supportable documentation such as, but not limited to, mortgage agreement, mortgage statement, bank statement or credit bureau. The payment amount should also include the property tax payment confirmed by supporting documentation such as, but not limited to, property tax statement, or bank statement evidencing pre-authorized withdrawals from the municipality.

Installment debts that based on the existing repayment schedule will be repaid within 90 days of the mortgage being advanced can be excluded from the TDSR. This also applies to any loan amounts that are repaid prior to the advance of funds. In each instance the Lender is to have confirmation on file the accounts have been repaid as outlined in the application.

TDSR Calculation:
\frac{Mortgage\; Payment\,+\,Property\;Taxes\,+\,Heating\;Costs\,+\,Additional\;Fees*\,+\,Other\;Debt\;Obligations}{Gross\;Annual\;Income}

*Additional fees include, where applicable: 50% of condo fees, 100% of ground rent, or 50% HOA fees.

Credit

An applicant’s credit history is a key indicator of their ability to repay debt obligations. The Lender must obtain an applicant’s credit history from a recognized Canadian credit reporting agency and the report must confirm the applicant’s identification, include their credit repayment history and list details of recent inquiries. For applicants without a credit history refer to “Canadian Citizens and permanent Residents Without Credit History” later in this chapter, and for applicants that recently arrived in Canada, refer to Product Specific Guidelines – New to Canada Program.

Sagen will review the following credit notifications as indicated:

Previous Judgments, Garnishments, or Liens	Applicants must have a minimum of two years of re-established credit.
Mortgage Foreclosure (includes Power of Sale, Voluntary Conveyance of Title / Quit Claim, or a completed sale of convenience to avoid legal proceedings)	Applicants that have experienced a loss on debts secured by any real estate are ineligible for mortgage insurance.
Bankruptcy / Consumer Proposal / Orderly Payment of Debt	Applicants must be discharged from bankruptcy or have fulfilled the terms of their consumer proposal for minimum 2 years. Have a minimum 2 years re -established credit, and The down payment must be from the borrower’s own resources.

 

Canadian Citizens and Permanent Residents Without Credit History

A borrower without credit history may still be eligible for mortgage insurance. The Lender should obtain the following documents to confirm a consistent and timely payment history.

If the borrower pays rent:	If the borrower does not pay rent:
Obtain confirmation of the following: Rent payment (or room and board) over the past 12 months. Payment of an additional financial obligation (or documented regular savings) over the past 12 months. *	Verify any 3 obligations: Financial obligations over the past 12 months. * Documented regular savings over the past 12 months. No more than one 30-day late payment is  permitted on non-rent obligations.

 * Examples of financial obligations include: utilities, cable, childcare, or insurance premiums. Canadian Citizens and Permanent Residents Without Credit History