In previous columns I’ve shared my thoughts on how best to organize yourself to apply for a mortgage pre-approval . I’ve also talked about different types of mortgages and shared some tips to help you pay your mortgage off sooner.
What I haven’t talked about is the dirty little secret of the mortgage process – the stressful time between writing your offer and finding out that your application is unconditionally approved.
When working with clients, my process looks like this (give or take, depending on the situation):
· Initial conversation to determine what you are looking for
· Application – often done on the same call, takes anywhere from fifteen minutes to an hour, depending on how many questions you have
· Background work – review your credit bureau, collect documents, confirm information matches your application
Once I’m confident that you are ready to go shopping (or refinance, whichever the case is), we have a second conversation about where we go from here.
Now the exciting part! You head out with your realtor and look at different homes in your price range.
Here is where the stress starts. You find a home that you love (or checks all the boxes on your list once its renovated). You ask your realtor to write an offer.
There will most likely be some back and forth between both parties (you as the buyer, and the sellers, both represented by your realtors). The next day or two may be very emotional as you negotiate back and forth to come to agreement on terms like the price and closing date.
Your offer may not be accepted for several reasons. Maybe there are competing offers, or maybe the sellers are not willing to accept the price you are willing to pay. In this case you are back to the drawing board looking for another home.
Once you do have an accepted offer, the process kicks into high gear until your unconditional approval is in place. I’ll explain what that means in a minute.
Your realtor puts together a package that includes your accepted offer, a current title search of the home you are buying, a Property Disclosure Statement, and the realtor version of the MLS listing for the home. With this package I finalize your mortgage application and submit it to a potential lender.
The accepted offer will have conditions written in the contract to protect both buyer and seller. Common conditions include:
· That you are able to find suitable financing
· Subject to a satisfactory home inspection
· Subject to your review of a Property Disclosure Statement (completed by the seller, outlines any potential issues with the home)
· Confirmation that you are able to purchase home insurance for the property
· Review of the title search to make sure you are aware of any easements
· Sale of your current home if applicable
Depending on the situation, there may be other conditions. For instance, if you are buying the home as your primary residence and there is currently a tenant, lenders require the home be vacant when you take possession. In this case they will ask for a copy of the notice given to the tenant requiring them to move.
If the offer was written subject to the sale of your home, it will most likely contain a time clause requiring you to finalize your offer within forty-eight hours if a back-up offer is made by another purchaser. There is usually a time period built in for you to sell your home first (ie: a month), but if it hasn’t sold within the month the sellers can potentially accept a back-up offer.
From conversations with clients, this is the time they feel the most stress during the process. Waiting for an approval from a lender feels like it takes forever, and doubts about whether they will be approved run wild.
In reality the lenders I work with generally have a commitment in place within twenty-four hours. My favorite lender has a turnaround time of under four hours.
When the lender issues a commitment, it is essentially an approval in principal. The commitment is issued with its own set of conditions. Once those conditions are signed off by the lender you are in the position to sign off the financing subject of your offer.
Conditions on a mortgage commitment generally include:
· Confirmation of your income
· Confirmation of your down payment
· Confirmation of other details that affect your application (ie: if you own another property they will ask for confirmation of the mortgage, property taxes, and rental income if applicable)
· Confirmation other debts have been paid, if required
If you are a T4 employee with a great credit history that has been diligently saving your down payment this step is usually pretty smooth.
Your documentation is submitted to the lender. The lender will do a verbal confirmation of your employment. If your documents match your application, the financing conditions (again, depending on the lender’s processes) can often be signed off within twenty-four hours.
If your application is more complex, satisfying the lender’s conditions may take days of back and forth and additional documents from you.
More complex may mean if you are self-employed, if you have multiple properties, or if you have a bruised credit history. If the property you are buying has issues, this may also require additional paperwork (ie: a strata unit with major repairs needed for the building).
After I have confirmation from the lender that all their conditions are satisfied, you are able to remove your financing condition. Unless something unusual is found during the home inspection, this is the point that most people take a deep breath.
Once you have your final approval and have signed off all the conditions on your offer, the hard work is done. About a week before you take possession of your new home, you will need to take your down payment funds to your lawyer and sign final documents and make sure you have home insurance in place.
Whether working with a mortgage broker or your bank, regular communication and updates will help reduce your stress through the process. Working with someone who is thorough upfront will set you up for success and help speed up the approval process.
And … if you are already a homeowner in any of the areas affected by the Speculation Tax, make sure that you complete your declaration. March 31 is rapidly approaching!