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What is the mortgage approval process in Canada?

The mortgage approval process can be a complex and daunting process for some who have never experienced it yet. In this post, we will show the step-by-step process you will go through to settle those nerves and make the process as clear as possible.

Before you sign the dotted line on your mortgage, one optional step is to get pre-approval on a mortgage. When you visit the lender, they will tell you that you have pre-approval to get a mortgage for a certain amount. This is really encouraged, as it allows you to know exactly what the lender will give to you once you have had an offer accepted on a property (and therefore, you know what the absolute top of your budget is).

The start of your mortgage approval process will normally begin once you have made your offer to purchase (unless you’ve gone through pre-approval) and you have had your offer accepted by the seller of the property. Your offer is always going to be conditional on obtaining the financing to back up your offer. This is why so many property purchases can fall through, as individuals realize after their offer has been accepted that they actually cannot be approved for a mortgage on the amount they have offered. This is why it is important to open discussions with your chosen lender before placing offers to get a rough idea of your budget.

Once your offer has been approved, you will need to obtain your mortgage approval to move forward with the purchase of your chosen property. The mortgage approval process and pre-approval process are relatively the same; they take place at different times. You will need to provide details to your broker about the home you have had an offer accepted on, along with in-depth details on your personal/household income, as well as details on the down payment you will be making.

You will need a wide variety of documentation during this process so that the lender can get a full picture of the risk profile you would be for them. Some documents you are likely to require:

Employment Details:

  • Pay Slips or a signed letter from your employer disclosing your current employment status and employment income. You will likely require at least the last three payslips as evidence.
  • Any evidence of other sources of income. This could include rental income, side jobs, investment income etc.

Down payment details:

  • The lender will want to know the source of your down payment. Are you using your own funds? Are you taking it out of savings? Or is someone helping you with the deposit?
    • It is worth noting that if you are receiving money from a family member or friend to help with your down payment, then you will require a signed letter stating that the money being given to you is not a loan, and is in fact, a gift.
  • If you are utilizing the home buyer’s plan, you will need to provide proof of this.

Financial details

  • A breakdown of your current assets and liabilities. Many people don’t keep an accurate and up-to-date record of this. It is beneficial to have this prepared and ready before you even start looking at properties.
  • Details of the amount you will be provided as a deposit (this should be included within your Offer to Purchase).

Property Details:

The lender will want to know as much about the property you are purchasing as possible. This could include:

  • Address
  • Planned closing date
  • Taxes/fees associated with the property
  • Real estate listing
  • Copy of the Offer to Purchase
  • Purchase price
  • Home appraisal copy
  • Home inspection copy
  • Lawyer’s details

Once your lender has received all the necessary details to move forward with the mortgage, the application will be sent to an underwriter. The lender uses debt-service-ratios to determine the level of affordability you face in taking on the mortgage whether or not your specific ratio will fit within their guidelines.

Once the lender is happy with your application and the property you are purchasing, your mortgage will be approved. The typical turn-around time for a mortgage from the start till final approval is 4-8 hours.

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