The Mortgage Approval Process
The thought of how to get a mortgage can seem like quite a daunting task at first. But we’re here to break it down a bit more in detail and explain the process of what happens from the time you think of wanting to purchase a home right through to move-in day. We always strive to make this process as seamless and stress-free for our clients as possible, but there is a lot of work that takes place behind the scenes. Here is a peak into the process ….
DECIDE TO BUY
The first step in deciding to purchase a home, is getting your Pre-Approval first ! It may sound obvious, but deciding to seriously move forward with buying a home is a big decision to make ! There are a lot of factors and emotions that go into place when purchasing a home, so we want to ensure you are ready and confident in the decision to move forward.
There are a lot of factors that go into feeling confident in purchasing a home. Is this your first home? Do you have an existing home you need to sell ? Do you have other debts you need to take care of first ? How is your credit – are there any hiccups you need help with ? So many questions will run through your mind but the best advice I can give you is to call us to find out what you can do today to put a plan in place. It might not be today you begin your house hunt, but it will be one day closer as we get you ready to start your journey
GET PRE-APPROVED
A pre-approval for a mortgage is when Mortgage Milestones reviews your complete portfolio and application. We will review your income, assets, and current debts to determine what mortgage amount you can qualify for and are comfortable paying each month.
The amount you can qualify for is calculated using two very important debt ratios: the GDS and TDS. The GDS, which is the Gross Debt Service, is the percentage of your monthly household income that includes your monthly housing expenses. It must not exceed 39% when you have less than 20% down. The TDS, Total Debt Service, is the percentage of your monthly household income that covers your housing expenses and any other debts you have. It must not exceed 44%.
If you are putting down more than 20%, there is a bit more flexibly on the GDS ratio, depending on the lender – that is something we can discuss when we are processing your application.
Using these ratios, Mortgage Milestones will let you know the maximum mortgage amount you would qualify for, while still being within the allotted ratios, but most importantly – ensuring you are not going to be house poor !
GET YOUR FINANCES IN ORDER
The mortgage amount you have been pre-approved for, combined with what you have decided to put down as your down payment, equals the total amount you can use to purchase a home. When setting your budget for down payment, we also need to include the closing costs to purchase the home. This is usually an additional 1.5 to 3% of the property’s purchase price. Closing costs will cover land transfer tax, legal fees, title insurance and CMHC tax where applicable.
Your down payment can come from a variety of sources. As a First Time Home Buyer, you can use up to $35,000 from your RSP and you have 15 years to repay yourself. For all purchasers you can use your savings, TFSA’s a gift from a family member or the equity in the sale of your home. There are many options, we just have to discuss what option is best for You !
FIND A REAL ESTATE AGENT
After you have your Pre-Approval in place, you will need to find a real estate agent you trust and connect well with, as you are going to spend a lot of time together while you are looking for your new home. At Mortgage Milestones, we have the pleasure of working with some pretty amazing like-minded realtors, so if you are in need of a recommendation, please ask as we are more than happy to refer you to the agent that is best suited to you and your location!
BEGIN HOUSE HUNTING
Your realtor is going to ask you for your budget and the must-haves for your new house, like an open concept floor plan or an in-law suite in the basement. Once all items are determined, they will begin finding properties that fit what you’re looking for and booking appointments to view houses as they become available.
FALL IN LOVE WITH A HOME
Once you’ve found the perfect home, it’s time to submit an offer and make it official. To assist in strengthening your offer, we can provide a confirmation letter as proof of your pre-approval. This is a letter that lets the sellers know you have been pre-approved for the amount of your offer and your realtor will submit the letter along with your initial offer.
The real estate market can get crazy with many multiple offers on one property, which might have you feeling the pressure to submit an offer with no conditions. At Mortgage Miletones, we will always recommend adding a financing condition with your offer. During the financing period, this allows us the allotted time to finalize your formal approval as both the lender and the insurer, if less than 20% down. They will both need to approve both your application and the property and property value for the home you are purchasing. These conditions are put in place to protect you and your interests, if anything was to go wrong.
Oh, and don’t forget a home inspection! A qualified home inspector can find what you might have missed…
UNDERWRITING APPROVAL
Once your offer to purchase has been accepted, that’s when our team at Mortgage Milestones will begin the behind the scenes work on your behalf, to turn your pre-approval into a formal approval. Once approved, the lender will give us a conditional approval that will include, confirmation of income and down payment including your closing costs and the possible house appraisal. We work together with the lender to satisfy all these conditions and then the lender will instruct your lawyer with their instructions to fund, once we are complete.
FIRM SALE
Once we have confirmed your approval, your realtor will let the sellers realtor know that we have satisfied your financing condition. When all conditions listed in your offer have been met, you officially have a firm sale – YAY !! Congratulations on the purchase of your new home !
MEETING WITH YOUR LAWYER
After the lender receives confirmation that all conditions have being satisfied we are then broker complete and we are finished on our end. Now, the will instruct your real estate lawyer, who will prepare mortgage documents for you to sign. When you meet with your lawyer, they will once again go over all of the terms of your mortgage with you. This is also when you provide a bank draft with the remainder of your down payment and all additional closing costs.
Although we are complete on our end, we will work closely with your lawyers office to ensure you have a smooth experience from start to finish !
Within 30 days of your closing date, you will also need to arrange your new home insurance policy. The insurance company will send a binder letter to your lawyer confirming that on the day of closing, you have the proper fire insurance in place. This protects both you and the lender.
MOVE-IN DAY
This is a busy day behind the scenes for your lawyer, as the lender will release the funds of your mortgage and they will register the ownership on title Once all of the dotted lines are signed, the keys are yours and the purchase is complete. Now all that’s left is to move in ! That was pretty easy, wasn’t it ?!
If you have any questions about your mortgage, get in touch!
