Previously I discussed the mortgage pre-approval, which is the first step in the mortgage approval process. Here is a basic rundown of the rest of the process, from purchase offer acceptance to closing day.
When you actually submit a real deal, triggered by the submission of the signed purchase and sale agreement, the lender then looks at your file in depth.
It is ALWAYS recommended that you stipulate a financing condition in the offer, it is your way out if, absolutely worse case scenario, you don’t get financing, or you don’t get the financing suitable to you (make sure your Realtor writes condition clearly that doesn’t imply ‘any financing’…it should be ‘financing suitable to buyer’….financing could mean 20% interest, not sure many buyers would proceed with purchase if that were the case). The condition time length should reflect the amount of time it would take to get approval response from lender (this is where being prepared pays off, if your mortgage broker has all your documents and has reviewed them ahead of time, it can shorten the time). You need to talk to your mortgage broker about the timing, approval depends on a number of things. A good broker understands the policies of the lenders and if you would fit them, so they submit accordingly. A bad broker uses the ‘spaghetti approach’, throw it against the wall and see what sticks. Terrible strategy, wastes everyone’s time and establishes terrible rapport with lenders, they will not be eager to do their deals fast – ultimately hurts the client.
The qualification is two – fold: you the applicant – your income, debt, credit (all these can be preliminarily reviewed by your mortgage broker at the pre-approval stage) and the property – its type, condition, location, price. It is easy to forget the latter, and on rare occasions, the lender has issues with the property, examples: it is in poor condition or town population too small. The lender then either asks for additional requirements, such as appraisal, or advises they simply can’t loan on that property. The process would then lead to applying to another lender.
Once you get your approval from the lender, you may have additional conditions to satisfy. If you have submitted your documents upfront to your broker, this list should be short or fully completed. Don’t mess around with your credit between the time you commit to the mortgage (at time of purchase) and the time you close. The lender has approved you based on the information you submitted, sort of like a snapshot in time, try to keep it that way. There are amendments after commitment acceptance, but lenders don’t like that and it complicates the process, but sometimes stuff happens and you have to deal with that situation and make the mortgage work. Amendments may cause a delay in closing.
Once the conditions are satisfied, the lender can now send instructions to your lawyer. Note that all this takes time. Good real estate lawyers are prompt and efficient, but always, before signing off on the commitment, check with your lawyer regarding their availability around your closing date (sometimes they get busy or take holidays, you don’t want a surprise!). Your lawyer draws up the documents according to the lender’s instructions and will call you in for signature. This happens usually at least several days before closing, as all the signed documents then need to be processed. Closing day is really when the funds get transferred, all the work was done much before that.