5 Part Guide: The Mortgage Process & How To Get Approved
Download this entire guide in our shareable PDF: What to expect during the mortgage process
The mortgage process can seem daunting and overwhelming for the best of us. It’s so big in fact, that we had to break it up into five parts!
A mortgage is a big transaction that involves a substantial amount of money. Your clients will have feelings, which is why we have developed this 5-part series to help you ease their minds. By walking them through the process, you can prepare them for what to expect. They’ll appreciate your knowledge and be ready to participate.
Here’s the full mortgage process and what we’ll cover in this guide:
Part 1: The Application
You are ready to take the first step into home ownership or, you’re ready to refinance. This is going to help you get through the process more easily.
During the application process, you’ll be asked for information about:
- Your income
- The property being mortgaged
- How you will pay for the down payment (if you’re buying a home)
Your broker will pull a credit report and share it with the lender, so that they have details on any outstanding debts as well as your credit score.
If you have had a bankruptcy or consumer proposal, you will need to supply all supporting documents before being issued a mortgage commitment.
- Discharge statement
- List of assets/liabilities
- Dividend sheet
- Statement of affairs
Consumer proposal documents:
- Discharge statement or certificate of full performance
- List of assets/liabilities
- Statement of affairs
If your application falls within the lender’s guidelines, they will then send your broker a commitment that will outline the details of your mortgage.
- Interest rate
Ask your broker to go over these details with you so you understand them.
Part 2: Income Documents
Now that the application process is dealt with, it’s time to validate your income to your lender. This means you’ll be required to gather the documentation proving to your lender you can pay your mortgage on time each month. See the list below for what you might need depending on your type of employment.
Requirements vary from lender to lender, but these are the documents you will typically need to provide to support your application.
If you are employed, with a salary, you will usually be asked for:
- A letter of employment (to include name and address of company, job title, starting date and salary)
- Your most recent pay stub
- Notices of assessment (NOA) for the last two years (ensure that no taxes are outstanding)
If you are self-employed, work part-time or are paid by commission, you many need to provide:
- A letter from the company on letterhead reflecting your start date and position
- T1 generals for the last two years
- Most recent NOA (tax returns) to ensure that no taxes are outstanding
- Bank statements or company financials
- Corporate search/business license
- Statement of business activities
- Separation/divorce agreement, including child support details, if applicable
- Statutory declaration prepared by solicitor stating income used for qualification, if applicable
If you receive a pension or disability, you might be asked to produce:
- T4 and T1 generals for the last two years
- Bank statements to confirm deposits
- Perhaps an entitlement letter to confirm duration
Once you’ve produced the proper paperwork and sent it to your broker, your broker will send everything to the lender on your behalf.
Part 3: Your Home
Moving on to Part 3, here’s where we are thus far in the mortgage approval process:
Now that you’ve completed all your income paperwork, you’re ready to provide a few more details on the home.
You are going to be asked to confirm whether you will be:
- Living in the home
- Using it for rental income
- Using it as a second home
Your broker will arrange for an appraisal of the property to confirm its value (and market rent analysis if this is a rental property). The appraisal also reveals its marketability and its state of repair. You will be asked to pay for the appraisal up-front, directly to the appraiser. This will typically cost $350, though it can go up to $450 if it is a very large or remote home.
Mortgage for rental property?
If this is for a rental property, you will be asked for proof of rental income with:
- T1 (if declared)
- Bank account statements (if not declared)
Mortgage for buying your home?
If you are buying a home, your broker will need to see the purchase agreement for both the property you’re buying and the home you are selling (if this is the case). Your realtor will provide these to you. Your broker will also need your solicitor’s name and contact details, which will be shared with the lender.
Part 4: Down Payment
You’re almost at the finish line. It’s time to talk down payment.
If you are buying a home, the lender will need to know the source of the down payment. They may require:
• Your savings account/statement (90-day history) to prove the down payment is not borrowed
• A snapshot of your investment statement
• An RRSP statement
• A gift letter (if your down payment or part of it is a gift, it must be from an immediate family member)
Your broker will provide you with a template to fill in which makes this process easier.
Once your broker receives all the necessary documents outlined in the commitment, along with your signed copy of it, your file will be forwarded to the lender’s funding department.
Part 5: Closing
At the closing point, the lender will contact your solicitor to instruct them on the final conditions for closing. This will include how the funds should be disbursed. Your solicitor will be in direct contact with you to confirm your closing date. This is when you will sign the final documents and funds will be transferred.
Your solicitor’s role in closing and documents required
Depending on your personal circumstances and the conditions of your commitment, your solicitor will be asked to provide your lender with some or all of the following documents. Discuss these with your broker ahead of time to make sure your solicitor has everything they need at the time of closing.
The documents are:
- A signed pre-authorized debit (PAD) form to set up your regular mortgage payments.
- Title insurance policy.
- A copy of the property’s title (to ensure there are no outstanding liens).
- Proof of paid personal taxes and city taxes (unless some mortgage funds are going towards paying them off).
- Proof of subject property insurance (fire).
- Proof of identification.
- A payout statement to confirm the amount owing on your current mortgage.
The day of mortgage closing and what to expect
You will meet your solicitor on the agreed day of closing (this is usually determined by you, or if you’re buying a home, in agreement with the seller). Your solicitor will have you sign all necessary final documents. Once this is done, your solicitor will disburse the funds to the seller of the property or your previous mortgage lender and any other creditors, if instructed. Your first mortgage payment will start on the date outlined in your commitment.
That’s it, you’ve done it. With the help from your broker, surprises should be limited and your stress level should remain low. Congratulations!
To conclude, here’s the entire process from start to finish: