If you're looking to buy a house and are new to the home buying process, there is a chance that you are not familiar with the mortgage pre-approval process. Getting a mortgage may seem like a complicated and tedious task, especially amid the excitement of house hunting. We can help answer any questions you may have about a mortgage application so you can get pre-approved in no time.
Get a mortgage pre-approval first
Many Canadians think that the first step in buying a home is to contact brokers and go to look at homes. This isn't true! Anyone interested in buying a house should get pre-approved for a mortgage to ensure that they can afford a home.
If you choose to wait to get a mortgage pre-approval after you have found a home you would like to buy, your mortgage approval process may take too much time. This means that you won't be able to make your offer and pay your down payment before another interested party swoops in for themselves.
Getting pre-approved for a mortgage before you even begin house hunting is a great way to figure out what you can actually afford. A mortgage broker will evaluate your financial situation (i.e., income, outstanding student loans, and your credit report) to determine the mortgage amount and interest rates you qualify for.
If you don't get your approval before you start the process of buying a house, you may be left in a sticky situation trying to buy a house you can't really afford. Or worse, you could lose your dream house due to a tedious pre-approval process. Talk to your lender to figure out how you can get approved for a mortgage as soon as possible.
The 3-step mortgage approval process
In order to get mortgage approval, you will need to consider your financial situation. Mortgage brokers will leave no stone unturned when it comes to your credit history and other information. To make sure that this stage goes well, take a look at the requirements and gather all your documents ahead of time.
Shop around for lenders and mortgage rates
One of the main goals when buying a house is getting a good interest rate and loan. You should take your time to shop around for a mortgage lender. Make sure to ask them about their bank's different mortgage and interest rates and don't feel the need to commit to the first lender or mortgage rate offered. It is important to find mortgage financing that feels right for you and works for your financial situation.
Question the lender about their pre-approval process and their various rates. It's important that you are aware of all of the terms included in your mortgage options so you can pick what one will be best for you.
If you find a great interest rate, you can use a rate lock that will freeze your interest rate from the point of offer to closing. This will protect your mortgage rates until you have closed on your house.
The length of this stage depends on you. Some may find a lender within the first hour of calling, while others may take a few days. This is dependent on your comfort levels and if you are rushed for time.
In this stage, a mortgage broker will evaluate your financial situation to confirm that you can make your mortgage payments. This is an important step for lenders because they want to protect their investment in you and your home.
Lenders will evaluate several things when considering your application for a mortgage. A mortgage specialist will look at your credit score, pre-existing debt, income, down payment, and other assets in the pre-approval process. These factors will be used to determine whether you get approved and your loan amount.
This step could take anywhere from 2-3 days or more, depending on the lender and if there is an influx in people seeking pre-approvals.
After this step is complete, buyers will know their budget for their purchase price. This is when you should start actively looking for homes. Once you place an offer on a house and it gets approved, you should approach your mortgage lender to get started on your paperwork.
Official approval for a mortgage
If a lender decides that they are willing to support your home purchase and you have a home, you will move on to the official approval stage. This stage is very time-consuming because it involves underwriting many documents, conditional commitments processing, and the mortgage transaction.
After lining up a house, you and your broker will give a signal to your lender to begin the underwriting. This is when a lender reviews your ability to meet your mortgage approval requirements based on your credit bureau report, credit cards and debt, tax returns, and more. Basically, this is the exact same step as the pre-approval, but this part of the lending process but banks will provide you with official confirmation.
Next, you will receive your official "commitment" for a mortgage. This commitment means that you will receive a mortgage rate on a set of specific terms. Typically, these terms will be satisfied with the documents already on file. But, your bank or mortgage specialist may need additional information before they start closing. After this is given, your real estate lawyer will be notified to start finalizing your purchase.
This is the exciting step where you sign documents, provide your down payment closing costs, and receive any additional information. The lender will transfer any funds to your lawyer, who will distribute them. Once the down payment confirmation has been made, you can get the keys to your new house! In total, this step will last anywhere from 11 to 22 days.
How to get a mortgage approval faster
If you would like the steps to being approved to be faster, you should provide the needed paperwork at the start of the application.
Pay down your debt
You should take the time to pay down any debt you may have before applying for a mortgage loan. This will not only help you get approved faster, but it can help you get a better interest rate.
Save up a larger down payment
Saving up a larger amount for a down payment is a great way to show your mortgage specialist and bank that you are a financially responsible person. If you have a larger down payment, it is likely they will approve your mortgage application faster.
Don't quit or change jobs
It is important to show your bank you have a stable income so you can afford to make your mortgage payments, so any changes to your career should come after your mortgage is approved.
Check your credit score
A credit score is one of the biggest determining factors in getting pre-approved for a mortgage. It is important that you check your credit score before you begin the pre-approval process in case you need to spend some time improving your score.
In Canada, credit scores run from 300 to 900 with five different categories: Poor, Fair, Good, Very Good, and Excellent. Your bank will determine what category is applicable for your credit score, but it is generally the same across mortgage lenders.
A lender will gauge your financial responsibilities and abilities to pay off your mortgage based on your score. This is why it is very important to ensure that your credit score is at a good level for your mortgage pre-approval application.
There are several credit score calculators online that you can use to determine your credit score.
Get started on your mortgage approval now
It can take anywhere from 11 to 25 days or more to get approved for a mortgage in Canada. It is important to start your approval as soon as possible so you can get into the house of your dreams faster. While the pre-approval steps are nearly identical anywhere in Canada, the fine details may differ in some provinces. Check with your mortgage lender early in the process.