The Mortgage Process in 10 Steps
Taking on new debt like a car loan, a new credit card or a small line of credit is pretty easy. It usually takes minimal income documentation, some discussion of interest rate and a signature or two on the dotted line. Qualifying for a mortgage to purchase a home is bit more involved as it’s not something most people do often. Below you will find a quick summary of financing your new home in 10 steps. If you’re refinancing an existing property, you can skip steps 3-5.
Step 1: Find a friend in financing
Think about what you consider most important; quick service and response times, access to the lowest interest rates, a lot of experience, or all of the above. Then find a mortgage professional who possesses those qualifications. It is also important you feel comfortable talking to about likely the largest investment you will make in your life. If you don’t already know someone, ask your friends and family for referrals to professionals they have enjoyed dealing with or go online and read some reviews. Whichever way you go, be confident with your choice and don’t be afraid to call a few professionals before you find one you look forward to working with.
Step 2: Fill out the mortgage application
The information provided by you for your credit application is going to be confirmed by the lender via supporting documentation so be as accurate as possible when it comes to income, assets, liabilities and monthly payment amounts. Based on your application details as well as a detailed conversation with your mortgage professional about your financial profile, an application will then be structured for an approval that results in the ideal mortgage solution for you, the borrower.
Step 3: Get a pre-approval
If you have not already found a specific home to purchase an application can also be submitted to a lender for a pre-approval. Whether it’s an actual fully reviewed and committed pre-approval or just a written rate-hold from a lender, a pre-approval will give you an idea of your maximum purchase price while you are shopping for a new home as well as to protect you from any future rate increases while you are looking. Most rate-holds vary from 90- 120 days.
Keep in mind, a pre-approval is just the lender giving you the okay based on what you have told them as they still have to review the property and supporting documentation before your mortgage is “unconditionally” approved.
Step 4: Upfront documents may be required
Depending on how the approval process goes, your potential mortgage lender may want to see some upfront documentation before they can provide a “conditional” mortgage approval. If you can’t provide a document that is required of you, immediately advise your mortgage professional to see if there is another way to meet that requirement. Even if your lender has not asked for documents upfront, it is a good idea to get a list of potential documents you will be asked for as this will allow you time to gather any paperwork you don’t have quick access to.
Step 5: Happy House Hunting!
Now that you know what the upper end of your price range is you can go shopping! Whether you are working with a realtor or not, it is always important to know what you are getting into. Ensure you have an inspection and a financing condition on your Offer to Purchase. If you are thinking of buying privately, make sure you speak to a lawyer or realtor so your best interests are protected. Once you find a home and make an offer you will be required to provide an initial deposit which will be credited towards your downpayment. Take special note if you’re buying a condo as there is more property related documentation required than with a typical single-detached house or duplex that does not have a condo corporation.
Step 6: Submit the property for approval by your mortgage lender
Once you have an accepted offer, you can forward that to your mortgage professional along with a feature sheet that describes the property which allows them to get started on the submission for securing a “conditional approval”. Once you have an approval, you’re onto the next step. In the case of a refinance, your Mortgage Professional may advise a home appraisal is required to confirm the value and condition of your home or you may be dealing with a lender who offers internal automated valuations which are less costly than an appraisal.
Step 7: Review your Mortgage Approval
Once your lender has approved your application you will get a mortgage commitment. This very important document will contain details about your mortgage payment, pre-payment privileges, payout penalty as well as other legal jargon about your new mortgage. Be sure you understand it before you sign to accept and if there are some unfamiliar terms ask your Mortgage Professional about them.
Step 8: Satisfy the outstanding conditions
Obtaining a mortgage approval is just the first step as it is still “conditional”. That means the lender has set out a series of documents you need to provide for review and acceptance by them. You will be asked to give them documents confirming your income, downpayment funds and depending on the amount of your downpayment and a property appraisal may be required in order to confirm the property’s value. The mortgage approval will clearly outline what documents you need to provide in order for your mortgage approval to become “unconditional”.
Step 9: Sign final documents at the lawyers
Once the lender has accepted all of your supporting documents and you have agreed to the terms of your new mortgage, your lender will then send instructions to your lawyer. The lawyer will have to do some work on their end in order to get the mortgage funds from the lender and once the money is transferred to the seller’s lawyer, the property is yours. This is when the majority of your cash to close will be due. Closing costs consist of legal fees, condo fees if applicable and any property tax adjustments. I would suggest asking your Mortgage Professional for an estimate of what the closing costs will be and your lawyer will then be able to confirm the exact figures when you’re in their office. For mortgage refinances, you may not have to visit a lawyer as some lenders allow for a closing service to register the higher mortgage amount who usually cost less than a lawyer.
Step 10: Welcome Home!
Now that you’ve got your keys, the home is yours! Be prepared for your first mortgage payment to come out within the first 7-30 days after you’ve taken possession depending on payment frequency you have chosen. You may also have a small interest adjustment amount due during those first few weeks which is part of your closing costs.