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Understanding the Mortgage Process
I have heard the terms mortgage pre-qualification and pre-approval explained differently many many times, it's just confusing. Let me try to simplify it to what you actually need done to get a mortgage. You start by choosing an experienced professional (pick me pick me) who then reviews the below in accordance with the current mortgage rules...
The Rules
A seasoned mortgage broker will also understand the lender and insurer guidelines well so if any of the above areas will require an exception (when we go outside of the “rule box”) then we can work on that before your information actually goes to a lender. Exceptions can be minor items, or they can also be what holds an application back.
The Areas Reviewed in Application
Application Details (employment, savings, where is the down payment coming from etc)
Servicing Ratios (the numbers, income vs home debt and income vs all liabilities)
Credit Report (preferential to have 2 pieces of active credit, 2 years history on that credit and a minimum of $2,500 limits)
Material documents (down payment, employment)
Does Mortgage Pre-Qualification/Pre-Approval guarantee final approval?
No, but it provides as much security as you can have at this point. Reason being, there are conditions to approval which cannot be met until you find a property such as:
Lender Approval
Most lending underwriters do not review applications unless there is an offer to purchase in place.
Insurer Approval
If the down payment is less than 20%, then it is mandatory to attain default insurance. The Canadian Insurers are CMHC, Sagen and Canada Guaranty. Your application cannot proceed without their approval and they will only review an application if there is an accepted offer to purchase.
Exception Approval
If an application requires an exception (see above), it cannot be officially approved until the application is live (an accepted offer to purchase in place).
Property to Meet Guidelines
Pre-qualification is always pending the property meeting lender and insurer guidelines. For example, property must be marketable and in reasonable condition, some lenders/insurers will not accept age restricted properties, electrical up to code etc…
Lender Verification of Documents
Once the lender/insurer approve the application, the lender reviews your documents for accuracy as to what was stated in the application. Once reviewed the lender will send notification of documents approved or they may request further information. This is why it’s important to get your documents to your broker as soon as possible for pre-checking.
Please note this is a general guide only and the lender/insurer may add conditions as necessary.