The Mortgage Process And How To Get Approved
As mortgages involve significant sums of money, applying for funding usually entails a complicated process. The process is designed to ensure the legitimacy of the transaction and confirm that the lending party is dealing with a credible borrower. To break down the mortgage process and help home buyers get approved for the finances they desire, mortgage broker Boychuk Mortgage Group and his team have broadly explained the five parts involved in the mortgage process.
Step 1 - The Application
Whether an individual is looking for a first-time mortgage, refinancing, or is a well-seasoned investor, they will need to begin with a standard application to collect basic information. To apply for a mortgage, information on the following elements is required:
A. Borrower household income
B. The type of property being mortgaged
C. Down payment and the source of the down payment (if buying a home)
D. Credit report. The credit report will offer details about the borrower’s outstanding debt, if any, and their credit score.
Step 2 - Income Documents
Step 2 goes hand in hand with step 1 as these documents are what support your mortgage application. These documents are what your mortgage broker will collect, knowing they are what the lender will require to ultimately secure financing. Income documents help lenders validate the income stated by the borrower. This is necessary to prove that the borrower can make their mortgage payments.
The type of income documents needed for income verification will change from lender to lender, but these are the ones that most lenders will request under the following categories:
Hourly, Salary, or Commission Based Individuals
A. Letter of employment (with borrower’s name, current date, how the borrower is paid, and on a company letter head with the employer’s contact information)
B. Most recent pay stub
C. Notices of assessment (NOA) for the last two years (see that no taxes are outstanding)
D. T4’s for the last two years (to confirm employer specific income)
A. Business financials
B. T1 generals for the last two years
C. Most recent NOA (tax returns) to ensure that no taxes are outstanding
D. A letter from the company on letterhead reflecting the borrower’s start date and position
E. Corporate search or business license
Pension or Disability Based Income Individuals
A. T4 and T1 generals for the last two years
B. Bank statements (to confirm deposits)
C. An entitlement letter to confirm the duration
After producing the right documentation to the lender, they will review the details to determine if the borrower has a steady and reliable source of income.
In case of bankruptcy, the following documents are required:
A. Discharge statement
B. Dividend sheet
C. List of assets and liabilities
D. Statement of affairs
In case of a consumer proposal, the following documents are necessary:
A. Discharge statement or certificate of full performance
B. Statement of affairs
C. List of assets and liabilities
Step 3. Review the purpose of your desired home
After sharing income details, the next step in the process is to offer more details about the house the borrower is interested in and the purpose of the property. For example:
A. Is it a home to live in?
B. Is it home to earn rental income?
C. Is it a house used as a second home?
Once the borrower’s intention is clarified, your mortgage broker will set up an appraisal of the property to determine its value or market rent, if it is a rental property. The appraisal conducted will also reveal the marketability of the house and the percentage of repairs required. Borrowers will need to pay for the appraisal up-front and directly to the appraiser. A typical appraisal will cost $350 but can go up to $450 if it is a very large or remote property being appraised.
What is required when seeking a mortgage for a rental property?
For a rental property, mortgage borrowers will be asked for proof of rental income. This can be provided through:
A. T1 (if declared)
B. Bank account statements (if not declared)
C. Tenancy Agreement
What is required when seeking a mortgage for buying a primary home?
When buying a home, your mortgage broker will need the purchase agreement for both the property the mortgage borrower is buying and the home they are selling (that is, if they have an existing house for sale). This document will be provided to the borrower by their realtor. The borrower must also provide their solicitor’s name and contact details, which will be shared with the lender for authenticity verification.
Step 4 – Review of Your Down Payment
A down payment is a crucial component of a mortgage. It refers to the percentage of the purchase price that the borrower is willing to cover. The more money the borrower can put in, the better mortgage conditions they will enjoy. But, when it comes to down payments, mortgage lenders want to ensure that the source of this money is real and legitimate. As a result, they will require the following proofs:
A. A 90-day bank statement history showing the proof of down payment in the borrower’s account.
B. A snapshot of the borrower’s investment statement
C. The borrower’s RRSP statement
D. A gift letter (if the down payment or part of it is a gift from an immediate family member)
Mortgage brokers usually provide a template to fill when declaring down payment sources. They will also need the borrower to provide a signed copy of the same declaration or document.
Step 5 - Review Your Mortgage Pre-Approval
When shopping for a mortgage, your mortgage broker can set up what’s called a pre-approval, whereby the lender will agree to commit to the borrower in the form of a rate hold. A pre-approval is provided only after a thorough analysis of the borrower’s finances and related factors in which your mortgage broker will go over with you. Once pre-approved, the borrower will be aware of the maximum amount they can borrow and the estimated mortgage payments they need to make per month. They will also be able to lock in an interest rate for 120 days (sometimes more, depending on the lender).
That said, a mortgage pre-approval does not guarantee the borrower’s approval for a mortgage. It simply lets them know how much money they can borrow based off their application and supporting documents in step 1 and step 2. Accordingly, they can begin shopping for a house within the limit set by your broker and lender. To learn more about mortgage pre-approvals, please click here.
Once a pre-approval is granted, borrowers need to go over the interest rate, conditions of the mortgage, the term, and amortization. This can be done with your mortgage broker as they will help you understand all aspects of the mortgage.
Step 6 – Start Your Home Buying Process
At this point, you will know what your maximum home buying capacity is and will be able to start working with your realtor. Once you find your home, it is important to touch base with your mortgage broker and send them the MLS number or address prior to making your offer. Where every property is unique, there are specific details to every property that your mortgage broker will need to add to your application. Some of those details are property specific taxes, heat, and strata dues if applicable. This will give you the reassurance going into your offer that all your financing is in place to make for a smooth closing process.
Step 7 – Closing of Your New Mortgage
After all the necessary details are acquired, the lender will contact the borrower’s solicitor to instruct them on the final conditions for closing. This will include how the funds should be paid out. The solicitor will be in direct contact with the borrower to confirm their closing date. The closing date refers to when the final documents are signed, and funds are transferred for the purchase of a property.
What role does the solicitor play at closing?
Based on the borrower’s personal circumstances and the conditions of their mortgage, their solicitor will be asked to provide the lender with some or all of the following documents:
A. A signed pre-authorized debit (PAD) form (this will set up the regular mortgage payments to the lender)
B. Title insurance policy
C. A copy of the property’s title (to prove there are no outstanding liens)
D. Proof of paid personal and city taxes (unless a percentage of the mortgage funds go towards paying them off)
E. Proof of subject property insurance (like fires)
F. Proof of identity
G. A payout statement confirming the amount owed on the mortgage
What to expect on the day of closing?
On the agreed day of closing (determined by the homebuyer or seller), the buyer or mortgage borrower will meet their solicitor. The solicitor will have the borrower sign all the final documents. Following this, the solicitor will disburse the mortgage funds to the property seller or the borrower’s previous mortgage lender and any other creditors, based on the instructions provided. Then the first payment of the new mortgage will start on the date mentioned in the mortgage contract.
There you have it, the seven stages of the mortgage process. If you have any questions about mortgages, feel free to reach out to mortgage broker Boychuk Mortgage Group . We are here to help you find the perfect mortgage and manage your debt as your life goals change. Our team takes the complex process of applying for a mortgage and makes it clear and simple. Investing only a few minutes together will allow us to help you achieve your unique financial goals. We provide many options for a broad range of needs.