3-Step Mortgage Approval Process (Canada)

In the process of buying a house, applying for a mortgage is a crucial step. So what procedures and documents should be prepared for applying for a mortgage in Canada? Regarding this point, Jomo Sara will break down the steps to apply for a house loan in the following paragraphs, hoping to help everyone apply for a house loan smoothly.

Step 1: Pay off other loans
The applicant’s debt situation will affect the amount of mortgages that can be applied for. Therefore, it is recommended to pay off other loans such as car loans and school loans as much as possible before applying for a mortgage.

Step 2. Consult a housing loan expert to obtain pre-approval for housing loan (Pre Approval)
Generally speaking, before planning to buy a house, it is best for buyers to find out how much loans they can get from financial institutions (banks), or in other words, how much worth of houses they can afford based on their current financial situation. According to this principle, home buyers should first obtain a loan pre-approval (Pre Approval) from a financial institution (bank).
To obtain pre-approval of loans from financial institutions (banks), the first thing to do is to consult relevant housing loan experts. Here, for those planning to buy a house, there are two options: one is to directly consult with various banks about housing loans; the other is to consult a housing loan brokerage company and seek professional agents.
For the former, loan applicants can consult multiple banks (financial institutions) one by one, and then choose the best plan they think. For the latter, loan applicants can of course also choose multiple housing loan brokerage companies and choose the best loan plan they think. If you plan to seek a home loan from a loan brokerage company, generally, the loan brokerage company represents multiple banks, theoretically speaking, it can save a lot of time for loan applicants
In Canada, generally speaking, loan brokers provide services to clients for free. Since loan brokers have been specially trained and passed professional examinations to obtain a practicing license before they can officially start their jobs; therefore, these housing loan brokers can provide customers with professional services and help customers obtain free housing loan products suitable for their specific conditions. Serve to enhance the interests of customers.

Step 3. Submit materials and get pre-approval
To obtain pre-approval of housing loans, generally applicants need to provide relevant materials to financial institutions (banks). These materials generally include:

  • Personal identification
  • Proof of employment
  • Proof of income
  • Pay slip
  • Proof of tax return
  • Bank transaction flow
  • Proof of bank statement and other materials

The financial institution decides how much loans the applicant can obtain or how much value the house can afford based on the materials provided by the applicant. In the pre-approval document for the housing loan issued by the bank, the bank will notify the loan applicant of the amount of the housing loan available, as well as the interest rate of the housing loan. However, please note that generally, the interest rate provided in the pre-approval of housing loans provided by the bank is not the final interest rate given by the bank. This interest rate standard is only a reference interest rate, and it will be 10 to 20 percentage points higher than the interest rate in the same period. Only when the bank obtains the specific information about the last house to be purchased by the loan applicant, the bank will give the final interest rate level.

1. Find a satisfactory house based on the pre-approved loan
After obtaining the pre-approval of the bank loan, the buyer can tell his real estate agent to seek a house within the price range. After obtaining the property that they are satisfied with, the buyer generally has to sign a sale and purchase agreement (Sale and Purchase Agreement). Generally, a housing loan clause is included in the purchase and sale contract. This means that buyers must obtain approval documents for housing loans from the bank within a certain period of time (usually 7 to 10 days). If the buyer cannot obtain a loan from the bank during this period, the contract for the sale of the house will be invalidated.

2. Submit the house sale contract and real estate information
After a house buyer signs a house purchase contract through his real estate agent, he needs to submit the contract and specific information about the house to the bank in order to obtain the bank’s final approval for the house loan. In Canada, the specific information about the purchased real estate is a piece of introduction paper when the real estate agent promotes the real estate: the information contained in MLS (Multi Listing Services). Some buyers in Canada for the first time think that this is a very general advertisement paper, so after signing the house purchase contract, they throw away this “advertisement paper”. This actually brings some inconveniences to later work. Generally, the real estate agent will have the electronic version of this information; therefore, after signing the house purchase and sale contract, ask your real estate agent to send the house purchase contract and the electronic version of the real estate MLS information to the house loan agent so that you can finally get it from the bank Final loan approval.

3. Work income and bank information update
If there is more than one month between getting the bank’s loan pre-approval and signing the house purchase contract, the bank generally requires the applicant to provide the latest bank statement information and the applicant’s work income information when making the final loan approval to ensure that the applicant There has not been any change in the income from work to ensure that applicants have sufficient down payment funds for the purchase of houses and that the source of these down payment funds is legal. Finally, the bank determines whether to approve the loan and the loan interest rate level according to the relevant income certificate, work certificate and bank certificate provided by the applicant, as well as the specific materials related to the purchased house.

4. Bank approved loan
Generally, the bank will reply to the loan applicant whether the loan is approved according to the time limit for obtaining the loan as required by the house purchase contract. If the bank approves the applicant’s housing loan within this period, the applicant will notify his real estate agent to cancel the conditions and restrictions on obtaining housing loans in the housing sales contract. In other words, after the cancellation of this condition, the house purchaser will have the responsibility to perform the responsibilities conferred by the house sale contract.
Generally, after the bank approves the applicant’s housing loan, it will give the applicant a housing loan document. The English name of the housing loan document is: Mortgage Commitment. Please note that generally, the loan contract approved by the bank is set with many conditions. The setting of these conditions means that only after the applicant meets these conditions, the bank will finally issue a housing loan. These conditions generally include proof of work of the lender, proof of income, proof of bank bills, proof of down payment funds to repay certain existing debts and so on. Many loan applicants did not fully pay attention to these specific conditions when signing the loan contract. In fact, these conditions also require that when the bank finally issues a housing loan, it also needs the loan applicant to continue to update the salary slip, bank statement and other materials. At this point, some readers may ask, didn’t the bank ask for these materials when approving the loan? Why does the bank still need it before the final loan is issued? This is because the bank must ensure that the applicant’s income and debts have not deteriorated when the loan funds are finally issued, and that the bank’s down payment is sufficient and legal.

5. Loan Contract
Loan applicants generally care about two issues most when seeking housing loans: how much they can borrow and what is the interest rate of the loan. In fact, in a housing loan contract, in addition to these two most important conditions, it also includes other conditions. E.g:

  • Is the loan interest rate floating or fixed
  • Is the loan obtained open or closed
    The term of the loan contract is several years
  • What is the amortization period of the loan (25 years or 30 years)
  • Conditions for early repayment (pre payment privilege)
  • What percentage can the lender increase or repay the loan early
  • Method of penalty calculation
  • Who will collect property tax
  • Can existing housing loans be combined with housing credit loans, etc.

When signing a housing loan contract, the lender must carefully understand these loan conditions. These conditions are very related to loan interest rates. If the loan interest rate obtained by the loan applicant is lower, then the loan conditions in these areas may be more stringent. Therefore, loan applicants must communicate fully with the loan broker, and indeed obtain suitable housing loan conditions) is the best housing loan product.

6. Return the signed loan contract to the bank, and provide the lawyer’s relevant information and update the personal income information
The applicant shall return the loan contract to the bank after signing the loan contract. Along with the loan contract returned, the applicant must also provide the bank with relevant contact information for the attorney representing the house transaction: including telephone number, e-mail address, and office address. After the bank finally approves the housing loan, it will hand the documents related to the housing loan to the lawyer for processing. That is to say, in the final transaction process, the buyer’s lawyer boarded the plane in the name of the buyer on the property and the loan related to the property. This completes the real estate transaction in the legal sense. Before obtaining the bank’s final approval of the housing loan and issuing loan funds, the loan applicant must meet the various conditions required by the loan contract. For example, to provide the latest bank information and salary slips and other documents of the loan applicant.

7. Mortgage lenders should pay special attention to
Many people think that after returning the signed loan contract, everything will be fine, just waiting for the bank to release the loan. In fact, in the process of obtaining housing loans in Canada, things are far from simple. Because the bank has promised to lend money to home buyers, the bank has the right to cancel the promised loan at any time before the bank informs the real estate transaction lawyer to register the final transaction. Then, someone will ask at this time, hasn’t the bank already issued the loan contract? Has the mortgage been approved? However, remember that in the approved loan contract, the bank has set many restrictions. During this period, as long as these conditions in the contract are likely to be broken, the bank can cancel the approved loan contract at any time. This is because the housing loan approved by the bank is determined based on the applicant’s current debt level and income level. If these basic conditions change, then the bank will immediately cancel the approved loan contract. Therefore, after obtaining the bank’s final housing loan approval and before the bank’s final housing loan, home buyers (loan applicants) must remember not to do things that might change their current debt levels and income levels. For example, do not continue to borrow money to buy large objects such as cars or boats, and at the same time, try not to change your job. Both of these things will cause the applicant’s current debt and income levels to change; this will cause the bank to cancel the currently approved housing loan.

8. Meeting with lawyers and signing various documents
After the bank “finally” (this time is indeed the “last”) approves the housing loan and decides to issue the housing loan, it will notify the attorney of the buyer and forward the relevant loan documents to the attorney. The lawyer will complete all legal documents, including registration of the registered borrower’s housing loan. Lawyers will notify buyers to sign various legal documents related to housing loans and house purchases. After signing the document, the buyer will get the key to the house from the lawyer. This house purchase transaction also marked completion.

The above is the basic process that Sara Qiao brings you to obtain a mortgage for buying a house in Canada. Understanding these basic procedures can enable housing loan applicants to know that they are currently at the stage of applying for a loan and know what issues should be paid attention to at this stage. Only in this way can it be ensured that loan applicants can successfully obtain housing loans suitable for their specific circumstances.