Mortgage Approval Process

Your guide to the mortgage approval process.

Mortgage Approval Process

The vast majority of people that purchase a home cannot afford to pay for it with cash up front and thus require a mortgage. Even though a mortgage is technically required once a property is purchased it should not be left until the end. Doing so can result in you losing out on the opportunity to purchase the property you've put down an offer for. Applying for a mortgage would be a good idea even before you start to shop around for a home.

The Mortgage Pre-Approval

A mortgage pre-approval can help you figure out the value of the home you can afford. Without a pre-approval your expectations and reality might not align. A mortgage pre-approval is similar to a regular mortgage approval, but it may exclude specific information about the property. If you're thinking about purchasing a home in the $500,000 range and have $50,000 saved for a down payment, a pre-approval would tell you whether you would qualify for a $450,000 mortgage. If you find out that you don't, then you could revise your price expectations down instead of wasting time shopping around for a property that you can't afford.

For a mortgage pre-approval the mortgage representative will ask for:

  • Estimated Mortgage Amount
  • Estimated Down Payment Amount
  • Income
  • Monthly Obligations (i.e. credit card, car loan, etc.)

Based on the above information the lender will calculate debt servicing ratios and verify the applicant's credit score to determine whether a pre-approval will be issued. The mortgage representative will often rely on the accuracy of the information provided by the applicant without asking for supporting documentation to verify it since the mortgage pre-approval is not a binding agreement. To ensure that the mortgage pre-approval is as accurate as possible it is important to be honest when the mortgage representative asks you for specific information.

Once pre-approved you will be issued a pre-approval certificate with a rate hold guarantee from 30 to 120 days. Having the mortgage rate guaranteed for the specified term even if rates rise is a substantial benefit of the mortgage pre-approval. Thus pre-approvals are very popular in a rising interest rate environment. If rates drop during this time period, you will still be able to take advantage of the lower rate.

You made an offer on a property - now what?

You have your mortgage pre-approval in hand and make an offer on a property. What happens next? Hopefully the offer you made on the property had a financing condition. This clause gives the potential buyer time to obtain mortgage financing before the sale is finalized. If the potential buyer cannot get approved for a mortgage during that time the sale will not go through.

Once you found your ideal home and made an offer you're ready to go through with a mortgage application. You then meet with the mortgage representative that issued the pre-approval and provide an update on:

  • Mortgage Amount
  • Down Payment Amount
  • Income
  • Monthly Obligations (i.e. credit card, car loan, etc.)

An update needs to be provided on the items that have changed. Does the mortgage application now look completely different than the original one for your pre-approval? If so, the original mortgage pre-approval becomes irrelevant - aside from the rate hold guarantee that you're hopefully taking advantage of! The mortgage representative will now ask you for exact property details (address, property taxes, closing date, etc.) and verify your credit score once again to ensure it has not significantly gone down since the pre-approval. Below is the full list of steps you must go through to finalize the mortgage loan:

  1. Provide updated information for the mortgage application - mortgage amount, down payment amount, income, monthly obligations, etc.
  2. Provide supporting documents - income confirmation, down payment confirmation, purchase agreements, etc.
  3. Select a mortgage product - term, fixed vs. variable, open vs. closed, mortgage vs. HELOC
  4. Mortgage approval - the lender will verify your updated debt ratios and credit score to determine whether you meet the qualification requirements
  5. Sign lender documents - Upon approval you will be required to sign mortgage documents outlining the mortgage loan details provided to you by the lender
  6. Sign legal documents - Instructions will be sent to a lawyer of your choice to prepare the final legal mortgage documents that transfer property ownership to your name

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