Mortgage Approval Process

Mortgage approval process is more or less the same for all residential mortgages.

1) Purchase Contract - Offer Accepted
The majority of mortgages are applied when your "offer of purchase contract" is being accepted by the seller. There is usually a "subject removal date"; before this specific date, your mortgage approval should be lined up and confirmed by your mortgage broker or lender. You, as the buyer, will remove your "subject to financing" clause before or on the subject removal date, or on the flip side, cancel your purchase without losing your deposit if your financing cannot be approved.

2) Determine Down Payment
Before purchasing, most buyers have set their down payment budget. In Canada, if you are employed, you can go as low as "zero down"; whereas if you are a self-employed (business owner), you can go as low as 5% down payment. Note that the lower the down payment, the higher your monthly mortgage payment is; thus, the higher your income has to be to qualify for the mortgage.

3) Determine Mortgage Type
Mortgage is not just about the rate. There are different kinds of mortgages to consider for your situation. For example, for a conservative individual who cannot tolerate any fluctuation on the mortgage payments, it is the best to go with a fixed-rate mortgage. Whereas, a variable-rate mortgage will have a fluctuating payments, adjusted to Bank of Canada prime rate. There are also adjustable mortgage products and interest only mortgages. Ask your mortgage expert about the various options.

4) Submit Mortgage Application
The mortgage application contains three major category. All three are essential to determine your eligibility. First is your income type and income amount. Second is your assets (what you own), and the third is your liability (what you owe). With formal consent, your mortgage broker will check your credit score, which is another essential information for your mortgage application.

5) Initial Evaluation
An experience mortgage broker will be able to evaluate your mortgage eligibility based on the above information before submitting to the lenders. This is a step where you will hear from your broker about the products/options that are available to you. It usually take about a day for the broker to present your options.

6) Submit to Lender(s)
Your application will be submitted to the qualified and best rate lenders based on your situation and eligibility. A good broker has in-depth resources, which means that he/she has more access to different lenders to help your mortgage application. After the submittion, it usually take about 1 - 5 business days for the lender to evaluate your application.

7) Receiving Decline or Mortgage Commitment
After the 1-5 business days, depending on the lender, some are fast response, some are slow, you should hear from your mortgage broker about the lenders response. You will either know the reason of the decline and will re-submit to alternative lenders at that moment, or you will receive a commitment paper from the lender. The commitment paper describes the criteria (conditions) the lender will approve your mortgage if you can provide/proof their described criteria.

8) Preparing Documents to Meet Lender's Conditions
Lenders will always want to see your recent 2 years Notice of Assessment (NOA) to prove your reported income is what you had on the application. It is very common that the lender will want to see your proof of down payment in the form of 3 months bank statement history. Another common condition is to also show that you have sufficient fund to "close" the transaction (1.5% of purchasing price in cash/liquid fund to pay for realtor fee, property transfer tax, lawyer fee, etc). Lastly, for self-employed individuals, you will need to provide business proof in forms of one of the following: GST/business number; articles of incorporation; T1 General; or some lenders accept certified accountant's letter.

9) Obtaining Formal Mortgage Approval
Assuming all conditions are met by our supporting documents, the lender will issue a formal mortgage approval. It takes at least 1 business day for the approval to be issued after all conditions are met.

10) Subject Removal
The buyer, you, can remove your subject clause on your purchasing. At this moment, your deposit will not be refundable after subject removal. Speak to your real estate agent for the specifics on the deposit and the contract terms.

11) Funding/Transaction Completion
After obtaining a formal approval from the lender. It usually takes at least 5 business days to 10 business days for the lender to prepare your mortgage fund. Congratulations! You just purchased your dream house and have a mortgage selected for your specific situation and preferences!