Buying your dream home is a huge milestone that you should be very proud of. It means that you are now one step closer to achieving your financial goals. However, sometimes it can be a bit tricky to navigate the application process by yourself. In such situations, it can be a great idea to consider using a mortgage broker to guide you through each step of the application process.
How to apply for a mortgage
Securing a mortgage is not as simple as calling up a lender and asking them to give you a certain mortgage amount for a certain number of years. There are a few steps or stages that potential home buyers should keep in mind when applying for a mortgage. However, in general, the mortgage process can be divided into three main stages.
- Application – in this stage, your mortgage professional will ask you about your financial situation and history, sources of income, down payment, your personal details and needs.
- Approval/Preapproval – your mortgage professional will evaluate your completed application and obtain an approval or preapproval based upon a situation that best meets your needs.
- Mortgage Signing – your mortgage professional will review the terms and conditions of the mortgage approval with you before you sign the documents. The signed documents will be sent back to the lender, prepared and then sent to the lawyer or notary of your choice. You will then meet with your lawyer or notary for final review and signing of the mortgage conveyancing documents.
What is mortgage preapproval?
A mortgage preapproval is useful when you are beginning to shop for a home or property to purchase. Your mortgage professional reviews all the information and supporting documents you provided during the application stage and outlines how much mortgage you may qualify for when you are shopping for a home to purchase. Some of the supporting documents you will be required to provide to start will include pay stubs, notice of assessments, letters of employment, valid government identification, savings and investment statements.
How does the mortgage approval process work?
The mortgage approval process involves a few steps that make sure you can cover your obligations as a homeowner. Even though there may be more steps than you anticipated, they are not overly complicated and are quite easy to follow. It’s important to be aware of these steps and prepare for them in advance as they are a key part of getting your mortgage approved.
- Lender underwriting— the underwriting process helps lenders determine your creditworthiness or risk as a client. It involves assessing your application against the qualification criteria. The lender’s underwriter usually considers your income, credit score and history, whether you have any down payment savings or equity in your home and the condition of the property itself. If you’re using a mortgage broker, the mortgage professional will package up your application and supporting documents and submit the file to the lender that has the mortgage product that best fits your situation for underwriting review.
- Preclosing/Conveyancing— at this stage, you will have to set an appointment with your lawyer to sign documents and provide your down payment and any other closing costs or fees. Your lawyer will work with your lender and register your mortgage with the Land Titles Office.
- Closing— on the closing day, the lender transfers the funds to the lawyers’ trust account, after which the lawyer will transfer the funds to all involved parties. Then, the property title will be transferred over to you. They will give you the keys and register the title in your name.
Five important things to know about mortgages
- Principal— this is the outstanding balance on your mortgage. It is the amount of money you borrowed; the outstanding balance is reduced when a payment is made towards this portion of your mortgage. The principal can be further reduced by making additional payments above your regularly scheduled payment.
- Interest—This is a cost that is paid in addition to your mortgage loan payments. It represents the annual cost of borrowing money from your lender. Normally, it’s portrayed as a percentage of your total loan balance. Borrowers are obligated to pay interest each month along with the principal payment.
- Property Taxes— homeownership comes with the responsibility to pay property taxes to your city, town or municipality. Some lenders require you to pay your property taxes to them and they will remit them on your behalf to your city, town or municipality when the tax bill is due. Other lenders will not collect property taxes at all, and some will give clients the option. Your mortgage professional will be able to explain which options your mortgage contains; it is outlined in your mortgage commitment.
- Homeowner’s insurance— lenders require you to always have valid homeowner’s insurance on your home. This covers the home against damage from fires, floods and sometimes natural disasters. You can insure your home and belongings for their real cash value; however, lenders will require the structure to have replacement cost coverage. In condominiums and townhouses, it is the Strata that obtains the insurance policy for the structure, in those cases, you will have to get your own policy to cover your assets and strata insurance deductible.
- Mortgage insurance— if you’re making a down payment that is below 20% of the purchase price, you’ll be required to pay for mortgage loan insurance. Your mortgage professional will coordinate this with the lender, who then arranges it with the mortgage loan insurance provider they use.
Mortgage insurance is required to protect the lender in case you are unable to make payments on the mortgage and the lender is forced to foreclose on the property. You can try increasing the size of your down payment (above 20%) if you want to avoid paying for mortgage insurance. It is important to note that interest rates are typically higher on uninsured mortgages, so talk to your mortgage professional; sometimes it works out better in the long run to put down less and pay for the mortgage insurance and then make a lump sum prepayment on the mortgage when it funds.
What is the timeline of getting a mortgage?
In Canada, it typically takes 3-4 weeks from application to when the mortgage funds. However, this timeframe can be influenced by a number of factors, and mortgage brokers have been known to get mortgages funded in as little as one week in emergency situations. The more organized you are with your supporting documents and providing them in a timely manner, the faster the process will be.
To make the process smooth and quick, you should have all your supporting documents ready, like valid identification, proof of income (paystubs, CRA Notice of Assessments, T4 and Letter of Employment), and proof of down payment (3 months of investment and savings account statements) when you are purchasing a home.
Being able to successfully secure a mortgage is a worthy accomplishment that many Canadian borrowers aspire towards. As such, it’s definitely worthwhile to consider using a mortgage broker who can help you navigate the mortgage application process. Mortgage Maestro is a full-service mortgage brokerage that can help guide you throughout this process. They can assess your application and shop around with more than 50 lenders, including banks, credit unions, and monoline mortgage lenders, to find you the best mortgage and rate that meets your needs. Our advice is unbiased and free of any external influence. All they seek is to provide you with the best service possible to help you reach your financial goals.
Frequently Asked Questions
The quickest way to get a mortgage is to make sure that all your financial documents are organized and ready to go beforehand. This will make it much easier for lenders to process your application as they won’t have to spend extra time waiting for you to get your documents organized. An easy way to do this is to work with a mortgage professional, like one of our mortgage brokers at Mortgage Maestro, to review and evaluate your documents and obtain a pre-approval rate hold before you begin the home shopping and buying process.
The whole mortgage process usually takes between 2 to 6 weeks for most applications. The final approval will take about 2 to 5 business days depending on how busy the lender is at the time. All documents typically need to be received by the lender at least 10 business days prior to the mortgage funding/closing date.
There are various reasons as to why a lender would not approve a borrower’s application. Lenders use a wide variety of qualifying criteria to determine whether they are going to approve a mortgage application; these are referred to as the 5 Cs of credit. They include Character, Capacity, Capital, Collateral and Conditions; they determine an applicant’s creditworthiness.