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Mortgages: What is the mortgage approval process in Canada?

The mortgage approval process can be complex and daunting for those who have never experienced it. In this article, we’ll show you the step-by-step process you’ll follow to calm those nerves and make the process as clear as possible. Before you sign the dotted line on your mortgage, there is an optional step of getting pre-approved for a mortgage. When you go to the lender, they tell you that you are pre-approved for a mortgage of a certain amount. This is very encouraging, as it allows you to know exactly what the lender will give you once you accept an offer on a property (and therefore, you know what the absolute maximum is for your budget). The start of your mortgage approval process normally begins once you have made your offer to purchase (unless you have been pre-approved) and your offer has been accepted by the seller of the property. Your offer will always be conditional on obtaining the necessary funding to support it. This is why so many real estate purchases can fail, as people realize after accepting their offer that they cannot get a mortgage for the amount they offered. That’s why it’s important to have discussions with your chosen lender before making any offers to get a rough idea of your budget. Once your offer has been approved, you will need to obtain mortgage approval in order to continue the process of purchasing the property you have chosen. The mortgage approval process and the pre-approval process are relatively identical, but they occur at different times. You’ll need to provide your broker with details about the home you’ve bid on, as well as details about your personal and household income, and the down payment you’ll be making.

You will need a wide variety of documents during this process so that the lender can get a complete picture of the risk profile you represent to them. Here are some of the documents you’ll probably need: Employment information:

  • Pay stubs or a signed letter from your employer indicating your current employment status and income. You will probably need to submit at least your last three pay slips as proof.
  • Any evidence of other sources of income. This can be rental income, secondary employment, investment income, etc.

Down payment information:

  • The lender will want to know the source of your down payment. Do you use your own funds? Do you take it out of your savings? Or does someone help you with the deposit?
    • It should be noted that if you are receiving money from a family member or friend to help you with your down payment, you will need a signed letter stating that the money being given to you is not a loan, but rather a gift.
  • If you are using the Home Buyer’s Plan (better known as HBP), you will need to provide proof.

Financial Information :

  • A breakdown of your current assets and liabilities. Many do not keep accurate and up-to-date records on this subject. It is helpful to have this information ready before you even start looking for properties.
  • Details of the amount you will provide as a down payment (this amount must be included in your offer to purchase).

Property information: The lender will want to know as much as possible about the property you are buying. This may include:

  • Address
  • Expected date of purchase
  • Taxes and fees associated with the property
  • Ad on a real estate website
  • Copy of the offer to purchase
  • Purchase price
  • Copy of the home evaluation
  • Copy of the home inspection
  • Contact information for the lawyer or notary

Once your lender has received all the necessary details to grant you the mortgage, the application is sent to an underwriter. The lender uses debt service ratios, or debt ratios, to determine how much affordability you would face by taking the mortgage, whether or not your specific ratio meets their guidelines. Once the lender is satisfied with your application and the property you are purchasing, your mortgage is approved. The typical approval time for a mortgage, from inception to final approval, is 4-8 hours.

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Jean-Maximilien Voisine
Jean-Maximilien is an expert in Canada and France about Loyalty programs, Credit cards and Travel. He is the Founding President of Milesopedia.

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