Many consumers find purchasing a home to be a complicated process with more red tape than they ever expected. But mortgage brokers know the process well and can help ease many of the difficulties.
Here we review the basic steps of getting an insured mortgage. Insured mortgages are mortgages with less than 20% down payment, and therefore they need to be insured through one of the 3 main insurers in Canada: CMHC, Genworth or Canada Guarantee.
Being pre-approved for a mortgage involves having a mortgage broker do the calculations and review your credit and supporting income documents to determine if you are qualified to purchase for a specific amount. At that point, the broker would then send this to a mortgage lender who will guarantee your rate for up to 120 days so you can go purchase a home. Pre-approvals are a blessing, but not all clients get pre-approved before putting in an offer.
Once you have put in an offer to purchase, there are a few key dates and conditions that can be in the contract that you will need to know:
- Subject to financing: Typically, REALTORS® will build this condition into the purchase, which gives you a certain number of days to get financing approved. REALTORS® will know their market well and will select a time frame that they see as common for the area.
- Subject to inspection: This clause allows you to hire a home inspector to do an inspection on the home and give you feedback on the overall condition of the home. Mortgage lenders may sometimes request this information.
- Subject to appraisal: This clause allows you to hire an appraiser to give you feedback on the estimated market value of the home. Sometimes these reports can also be required from the lender or mortgage insurer and are ordered by the mortgage broker. The reports, when ordered by the mortgage broker, are the property of the mortgage lender – even if you pay for the appraisal. The mortgage broker can let you know the estimated value but cannot provide you with the report.
- Closing date: The closing date will be the day the lawyer will assign your name to the new property and release funds from the mortgage lender.
Once the mortgage lender has reviewed the application and ensured they are comfortable with the borrower’s application, they send the application to the insurer. The insurer reviews such details as credit situation, employment, and the source of the down payment. The insurer would also review and verify if the property could be insured. Sometimes borrowers are exceptional, but the property could have been flagged for being a leaky condo or having age restrictions or previous maintenance issues, and the insurer would then not proceed with the property. The three main components the insurer needs to approve are the property, income, and down payment. If and when the insurer approves the property and borrower, they would send your insurance number to the mortgage lender.
Our mortgage lender will receive back the insurance number from the insurer for your purchase and will then issue a conditional commitment. The commitment is conditional based on the lender and insurer receiving certain documents. For example, they will request to verify income, property and down payment. Your mortgage broker liaises with yourself and the mortgage lender to get all conditions satisfied.
Removal of Subjects
After you have received notice that all conditions have been satisfied with the mortgage lender, this is typically when your REALTOR® will request information– if you have been fully approved and if you are willing to remove conditions. When you remove conditions to financing, inspection, etc., you are guaranteeing that you will be proceeding and the purchase of the property is now firm and legally binding.
Once your subjects are removed and the mortgage lender has advised the mortgage file is “broker complete” (meaning there are no outstanding conditions to the approval), the mortgage lender will send instructions to the real estate lawyer to complete your mortgage closing. The real estate lawyer will be the one to sit down with you to review all the remaining closing costs of the transaction. This could include a portion of property taxes, utilities, land transfer tax, land title registration and legal fees. There can be other fees in the closing costs that are not listed above. At this point, once you sign with the lawyer and the lawyer finalizes the transaction, you are then a homeowner. Finally, you can meet your REALTOR® and grab your keys for your new home!