The Mortgage Process
The process of getting a mortgage can seem like a daunting task. But by being prepared and working with a mortgage broker, you can move through the mortgage process quickly and easily. The standard mortgage process can be broken down into the following 10 steps:
1. You Want to Buy a Home
The journey of getting a mortgage begins when you decide you want to buy a home, and realize that you will require a loan to do so. Once you’ve found your desired property, reach out to a Vancouver Mortgage Broker to kick start the mortgage process and find out what kind of loan you can qualify for.
2. Discuss Your Goals with a Mortgage Broker
In order for your mortgage broker to help you select the right mortgage product, you’ll need to inform them of your current financial situation and your upcoming goals. Are you planning to move in the next few years? Expecting a large inheritance? Thinking of retiring? Or starting a family? Big life changes like this will greatly influence what type of mortgage product suits your needs, so sharing these details with your mortgage broker is very important.
Next, your mortgage broker will have you sign a standard service agreement. This outlines all the services they will perform for you, and authorize them to pull your credit report in order to begin your mortgage application.
3. Provide Required Documentation
To prepare the application, your mortgage broker is going to require various documents including income, employment and down payment proof. The documents you’ll be required to submit can change slightly depending on the type of mortgage your need (residential vs. self employed vs. construction vs. reverse mortgage etc.)
The standard documents you’ll be asked to provide are below:
- Current job income proof via T4, pay stubs, or employment letter.
- Proof of other sources of income (freelance business, stocks, etc.)
- Are you using your own money? Provide bank statements for the last 90 days.
- Are you using the Home Buyer’s Plan (HBP) Provide proof of a withdrawal from your RRSP account.
- Are you using a gift? Provide a gift letter that states the money is not required to be paid back.
Current Assets and Liabilities
- An inventory of all your assets of value.
- An inventory of all existing liabilities.
- The address.
- Closing date.
- Estimates of property taxes, condo fees, and heating costs.
- A copy of the MLS listing of the home.
- A copy of the agreement of purchase and sale.
The faster you get the requested documents to your mortgage broker, the faster they can send your application to the lender to be reviewed, and ultimately approved.
4. Mortgage Broker Researches & Compares Available Mortgage Products
At this point your mortgage broker has a good idea of your financial landscape and your goals for the near future. With this information they can begin researching the products available from all of the lenders that they work with. In addition to looking for the best rate, your broker is reviewing things like terms, amortization length, special deals, and prepayment options.
It is important to note that if you were to go to a bank for you mortgage, this step would be omitted, as a bank only has access to their own limited range of mortgage products.
5. Application Submission
After comparing all mortgage products your mortgage broker likely has 2-3 options for you to choose from. They will explain the pros and cons of each mortgage product and move forward with the one you feel is the best fit. The mortgage broker will input all the information you provided to them into an electronic software, and submit it to the selected lender for review.
6. Lender Underwriting
The sixth step of the mortgage process is lender underwriting. Once your property details and personal information arrives at the lender, the mortgage application will be personally reviewed by an underwriter. This is where someone reviews your application and details, and determines whether or not you will actually be able to pay back the loan. One way that lenders determine if you are a worthy borrower, is by using the 5 C’s of underwriting:
1. Credit – This is a very important factor. Your credit report gives the lender an idea of your repayment history. The lender uses this to gauge how likely you are to make future payments.
2. Capacity – The ability to repay the amount borrowed. The lender will calculate your debt service ratios to determine if you would actually be able to afford the mortgage payments.
3. Collateral – What the lender has as security if you were to default on the loan. For mortgages, the collateral is the property. They will review the property’s location, characteristics and value.
4. Capital – How much you have personally invested in the property, ie. the down payment.
5. Character – In general, how trustworthy you seem as a borrower. Length of employment and credit utilization are two examples of things that establish character.
7. Lender Gives Conditional Commitment
If the application successfully goes through the underwriting process, the lender will provide a conditional commitment. This means that they will fund the mortgage IF you meet their list of conditions. A common condition given by lenders is that the funding is subject to an appraisal.
8. Full Approval
Once the lender’s conditions have all been met, the mortgage should be approved. You will be notified as soon as this happens. If there is a subject to financing on the purchase and sale agreement, it can be removed at this time.
9. Post Approval/Pre Closing
There is a gap of time between when the lender approves your mortgage, and the mortgage actually closes. During this time a lawyer will prepare to register the mortgage with the Land Titles Office and transfer the title of the property over to you. You’ll need to meet with your lawyer to sign documents, and provide the down payment and closing costs. It is extremely important that nothing to do with your employment or finances changes during this time gap. Because the funds have not actually been transferred, the lender could back out.
The last and best step in the mortgage process is of course, the closing. At this time the lender will transfer the mortgage funds into the lawyer’s trust account, who will disburse it to the parties who are supposed to receive it. At this point in time the loan is closed, and usually your realtor will give you the keys to your new home!