Taking on new debt is pretty easy and it usually only takes a signature on the dotted line and proof of employment income to get a car loan, a new credit card or a small line of credit. Getting a mortgage is more involved; below you will find the 10 steps it takes to finance your new home.
1) Find a friend
Find a mortgage professional you feel comfortable talking to about the largest investment of your life. It can be a bank mortgage specialist, independent mortgage broker or consultant, even some financial planners can offer mortgage advice and services. 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, do be confident with your choice and don’t be afraid to call a few professionals before you find one you look would like to work with.
2) Fill out the mortgage application
The details in your application are going to be confirmed by the lender with supporting documentation so be as accurate as possible when it comes to income, assets, liabilities and monthly payment amounts. This along with a conversation with you, the borrower, will allow us to understand your financial profile so we can determine the best way to structure your mortgage submission for an approval.
3) Get a pre-approval
Once we have discussed what kind of mortgage best suits your needs, we will then submit your application to a lender for a pre-approval. Whether it’s a true pre-approval or just a rate-hold from a lender, a pre-approval will give you an idea of your maximum purchase price when you are shopping for a new home. 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 as well as all supporting documentation before your mortgage is “unconditionally” approved.
4) Upfront documents may be required
Depending on how the pre-approval process goes for you, the potential mortgage lender may want to see some upfront documentation. If you are not able to provide any of the documents that are required from you, talk to your mortgage professional about an alternative that will still be accepted by the lender.
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 so ensure you have at the very least a financing condition on any offer to purchase document you write. If you are thinking of buying privately, make sure you speak to a lawyer or realtor to ensure your best interests are protected. Once you do find a home and want to make an offer, you will be required to provide an initial deposit of usually $2000 – $5000 at the very least upfront with the remainder of the downpayment due about 2 weeks before closing .
6) Submit the property for approval by your mortgage lender
Once you have an accepted offer, you or your realtor can send that to your mortgage professional along with a property feature sheet, which is then submitted to the mortgage lender for approval. In the case of financing a home you already own which is called a refinance, it is at this stage that a property appraisal is required to determine the value and condition of the home being financed. As long as the lender likes the property, you will receive a ‘conditional’ mortgage approval.
7) Review your Mortgage Approval
Once your lender has approved your application you will get a mortgage commitment that will be reviewed by your mortgage professional. This very important document will contain details about your mortgage payment, your pre-payment privileges, your payout penalty as well as other legal jargon about your new mortgage. Be sure you understand it before you sign to accept it, and ask your mortgage professional about anything you don’t understand.
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 provide documents confirming your income, downpayment funds, and depending on the amount of your downpayment, 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”.
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 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! In addition to the downpayment, there will be closing costs which consist of; legal fees, condo fee adjustments if applicable, any property tax adjustments, as well as the remainder of your downpayment funds in the event of a purchase, minus your original deposit amount. I would suggest asking your mortgage professional for a closing cost estimate while your lawyer will be able to confirm the exact figures.
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 14-30 days after you’ve closed on your new financing. You may also have a small interest adjustment cost due during those first few weeks, so double check with your lender and/or lawyer on when and how much will be due.
While financing a home can involve multiple professionals including a realtor, lawyer, property inspector, or appraiser, among others, the mortgage professional is the glue that holds it all together. Without the mortgage, you cannot buy the property, so keep your mortgage professional in the loop during your home financing process so it goes as smooth as possible.