Companies, institutions, and banks provide mortgages to thousands of individuals every day in Canada and approving a mortgage is a far less complex process than it seems. Proper knowledge of the entire process and following the correct steps make matters much more straightforward and smoother.
Experts of Mortgage Maestro will guide you through the entire process of taking a mortgage and will provide you with the most beneficial deal possible.
3 Phases Of Mortgage Approval
The entire process can be divided into 3 phases.
- The Initial Phase
- The Pre-Approval Phase
- The Approval Phase
The Initial Phase
The beginning phase of a mortgage approval can be split into two activities.
The Discussion
Everything begins with a formal discussion about the mortgage. This will involve the person who will take the mortgage, a professional mortgage officer, and a financial advisor. Many lending institutions will discuss the mortgage and the amount they are willing to finance.
This will depend on several factors like the property itself, the client’s background, and current financial condition. After a proper discussion, the client can decide whether they are ready to proceed with the mortgage.
The Application
After the final decision has been made, you have to proceed with the application. The application can be made online or in pen and paper mode. You can visit the office of the lender or bank or even apply it from the comfort of your home. Some lenders might even charge a small fee for it, but this is not mandatory.
The Pre-Approval Phase
Following the submission of the application and other related documents, the process officially begins. First, the application is put into an automatic loan processing system. Then, the credit bureau report and debt profile are checked and verified.
The amount of your mortgage eligibility will be decided based on your credit report and your debt-income ratio. The rate of interest is also decided at this stage. You can avail of the benefit
of interest rate lock-in for 120 days.
This essentially means that you can secure the mortgage at the rate decided during pre-approval even though the market rate increases during the next 120 days. Thus, pre-approval is beneficial in a rising interest-rate market.
The next step would involve property hunting. This includes looking for the right property, contacting the real estate agent, and making an offer.
After the property is confirmed, it goes “under contract” for value calculation and various essential inspections. The lending institution requires various inspections that are made mandatory by the Canadian government. They are the following:
- Appraisal performed by a licensed real estate appraiser.
- Inspection of wells
- Septic investigations
- Inspection for termites
- Inspection of the foundation
- Inspection of the home
- Radon investigations
The Approval Phase
The final phase of this process consists of many necessary steps.
Underwritings
Once the property is appropriately investigated and verified, all details and documents are updated in the loan processing system. The process is now forwarded to the underwritings review. This generally takes some time, generally between 24 to 48 hours.
In this process, the lenders measure the risk that it would take if the mortgage is sanctioned. The decision of taking a calculated risk is based on a few crucial factors like your income, equity, credit, and the property to be mortgaged. A favourable pre-approval can speed up this process.
Processing The Conditional Commitment
When the application meets the underwriting criteria and guidelines, and once the calculated risk is approved to be taken, the process moves on to the conditional commitment. Here, the individual is called upon to discuss the terms of the mortgage.
Once the commitment is confirmed, several important documents need to be furnished. The process will only qualify if every document asked for is shown in a certain period without any complications. The application is marked complete at the end of this step, and now it advances to the last step, the closing.
The Closing
The application is now complete and approved. Now, the lawyer will prepare the documents for the registry of the property as a mortgage to a specific lender. They will also prepare the down payments and closing costs if a new property is involved and change the ownership from the last owner to the current one.
The process officially ends here as the fund is transferred to you, and therefore, the mortgage is complete.
5 C’s Of Mortgage Approval
The process of approval for a mortgage is very efficient, quick, and simple. But getting approval for a mortgage depends on several factors.
- Character: The individual’s character and background will be verified, investigated, and scrutinized before sanctioning any such loans.
- Capacity: An individual’s capacity is crucial to understand because it shows whether they can repay it in time with their interests.
- Credit: A minimum credit score of 600 is mandatory to qualify for a mortgage in Canada.
- Capital: An individual’s net worth is a huge deciding factor for a lender to understand their risk.
- Collateral: This is the property that will be given into the mortgage. The value of the property plays a huge role in the approval process of a mortgage loan.
Necessary Information Required
There are many types of information and documents that are necessary to qualify for this mortgage:
- Present-day employment income information like payslips.
- Other sources of positive incomes.
- Down payment information like investment statements, withdrawal statements, and many more.
- Information regarding several investments and liabilities that you currently have.
- A cancelled cheque.
- Details of the property, including the address.
- Property taxes and rental fees
- Photocopy of the purchase agreement
- Photocopy of home appraisal, investigations, verifications, etc.
- Bio-data of your lawyer.
Endnote
The process of mortgage approval in Canada can be overwhelming for new home buyers. The entire process usually takes about 2 – 3 business days, provided there was no complication. A pre-approval status stands for 120 days, and a new property needs to be decided within this time frame.
It is best to take the help of a professional if this is your first experience with a mortgage. This would keep the process organized and speed it up.
