How is a mortgage application process
How does the mortgage approval process work? (and how to get approved fast!)
In this video you'll learn the step by step process
you need to take to get approved for a mortgage
that's coming right up
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Hi everyone I'm Karl. Welcome to another homebuyer school video a channel where
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notification bell so you don't miss anything. So today i'm joined by
Mujtaba Syed, Mortgage Specialist with the Bank of Montreal and today we're gonna
go through the actual mortgage approval process. So Mo let's go step by step how
would someone actually get approved for a mortgage? Mm-hmm so the process should
be very simple it's very straightforward you go you book a time with your banker
your lender your mortgage specialist go in they will come up with a list of
documents that you provide depending on your specific scenario documents can
vary that the bank will look for you've got a document you go in for your
meeting and then you actually sit down you have the conversation with your
lender or your specialist at that time and say "listen this is my first time
buying a home", maybe do some research right and watch our videos to see what
kind of questions are good to ask your lender and specialist so they're
prepared. I feel like the best clients that I come across are the ones are
mostly informed themselves. So you go into the meeting you bring your
paperwork with you and then the lender will sit down with you and start the
process which is what we call our pre-approval application so they will
sit down with you go through the pre-approval don't ask a question
regarding your income, your assets, your liabilities, they'll go over your credit with
you and they'll come out with roughly and amount that you guys can afford
which is within your budget. Now an approval amount and a budget amount is
totally different things you could approve for a lot higher but it might
not fit your personal budget right, so some people have our own personal budget
in mind that you don't want to go over a certain monthly payment -- I would say
kind of decide that before you go into your initial meeting because most
lenders what they do is they'll qualify you for the maximum. Especially in the
initial stage because they have no idea what's going to be on the market when
you go out. Pre-approval is usually are good for about 90 days but the rate hold
that we can do -- so let's say there's a really good wait hold -- we can hold out
for four months, but even though let's say your pre-approval has expired in 90
days, you can come back and see your lender again and we can extend that
again for another 90 days as long as the situation hasn't changed. So let's say
you find that perfect home lets say you find a home that's
$400,000, you write an offer on it saying you're willing to pay $390,000
the offer gets accepted by the seller at $390,000
they'll give you a certain time period that will be called Conditional
Financing. It will give you five to ten business days depending on the
seller to get your financing in order or get your financing approved. Once that
day starts, the clock actually starts ticking from that time, and you have that
certain time period now to go ahead and get your approval that's the reason why
I really stress to my clients getting a pre-approval prior to that because now
everything's already in place. Now we only have to do is to get the contract
provide to the lender. Now can actually approve you and the property at the same
time we get that sent off you should gain approval within 24 to 48 hours and
then from there you can go ahead do the inspection that you need to do come in
to the bank, sign paperwork, meet with your lawyers,
and then you just move in. So it's actually not that difficult of a process
two or three steps there, but it should be a very seamless enjoyable process if
you've done your homework right in the beginning. So if you want to know more
about the actual pre-approval process we got a video up here and I'll link it in
the description below as well. So Mo, once you've selected a home,
you've actually gotten your pre-approval, how long does the true mortgage approval take?
- from the time the clients submit documents or the lender submits the
documents to the underwriter, which is an individual in the backend of the file
who assesses it, it should only take 24 to about 48
hours maximum. Shouldn't take longer than that -- now there could be some off
situations where there could be system delays or there's a backup or a log
that's kind of moving very slowly but your lender would be able to tell you
that at that time because they technically have an idea -- but usually if
everything is going smoothly should be 24 to 40 hours no longer than that so
what are the requirements somebody has to have in terms of getting the approval?
So what most lenders look at is called five Cs of credit so the five Cs of
credit are: Character, Capacity, Credit, Capital, and Collateral.
Capacity means, can you afford the home that you're purchasing based on the stress test,
based on the amount. So for that we will ask you for certain types of
documents that you might need depending on your scenario. If you are an employee
we can ask you a letter of employment, pay stub, direct deposits going into your
account, and we can ask you for an annual document
as well T4, your tax returns... If you're self-employed it could be a very
different conversation they can be as simple as to your tax returns, or we go
for like a deeper dive if we can't find the information we're needing. But the
lender will tell you at that time what you need to do. The other thing we look
at is credit, that's another C of the lending process is credit, so we
want to make sure that you have good credit to buy a home within Canada
the minimum is six hundred so if you have anything lower than six hundred
unfortunately you will need to get a cosigner; someone that has a higher
threshold of credit to help you. There's also certain guidelines for
example let's say higher ratios for example if you want to go for your
maximum borrowing amount you want your credit to be at least 680 or higher
and that gives you the maximum room available to buy if you're last in 680
then your purchasing power is going to be a little bit less based on the
threshold it could go down by a couple hundred dollars a month it will just
depend your lender will discuss that with you at the time of the appointment
another C of purchasing is called collateral which is now the property in
place that we're actually using as collateral we want to know that it's
meets our guidelines right -- let's say there's no issues with the home it's not
too old, it's not falling apart. Lets say if it's a condo, there's no special
assessments going on. All that stuff the bank will look at because not only are
they using that property as collateral but they're also trying to save you as well
As a homeowner you don't want to get stuck with something that you
unfortunately did not know and now you start paying that mortgage for 25 years and
let's say the value's not there or there's a major issue with the home
right so that's first three C's of credit we look at character as well.
So character what we explain to our clients is: you promise to pay something
which is let your mortgage pay on time we will assess that by looking at your
credit or your income we look at all that stuff to see: can you afford to pay
or will you pay what you promised to do? Capital just means we look at technically
what your net worth is. So let's say your assets minus your liabilities is
your net worth. It could be negative, it can be positive, it just really depends
on a lot of different situations so if the underwriter or the bank
looks at certain life stages you're in -- you're just starting out for
the first time, you might have some student loans so your capital might be
negative your net worth might be negative, it's not a big deal it
fits perfectly with your life stage. But now if the scenario is reversed and
let's say you're 60 65 and you have negative net worth, now the bank might
think or look harder and say 'what happened here, you don't really have
shown any history of borrowing or having any history of saving' so they
might question a little bit more.
So when you talk about credit if you do a
mortgage approval does it impact credit score?
It's a case by case scenario so
it's very hard to say. So if for example let's say you're coming in and
you decided you picked your bank you've done your research and say 'this is my
bank I want to deal with them' and you apply for a pre-approval, it's not going hurt.
But what happens in most scenarios is
clients unfortunately go and they shop at multiple places, and then what happens
it does reduce your score because the credit bureau is just a tool that
banks use. So what it says to them is that this person has applied at five
or six different places, they haven't got approved for the first four, now going to
their fifth, now they're a credit seeker and they haven't got approved so that is
what the credit bureau thinks and it reduces your score by that much
but actuality what you might be doing is just rate shopping.
But if you are
rate shopping, definitely make sure that the lender is not pulling your bureau.
That's something that you don't need to do at that time. You can have a rate hold
or you can even discuss rates without pulling your bureaus so it doesn't
affect negatively on your credit bureau. I would definitely not recommend
shopping with five or six different lenders just for rates. That would
definitely impact your score. It also depends on specific lenders how they
report to the credit bureau if it will show up as a soft hit which is an
inquiry or a hard hit which is an actual real live application. Ask that to your
lender as well to see how they report to the credit bureau.
And one more thing in
terms of talking to your lender, what are some of the questions that you probably
want to ask when you're actually going out and finding a lender?
The biggest question I feel a lot of clients don't ask is going into the nitty-gritty of the
terms and conditions of a mortgage. Not every mortgage is built the same there's
certain aspects that let's say are built into the mortgage where you have some
certain stipulations, but you also have certain benefits built into a mortgage.
Say you want to prepay us for an amount and let's say this mortgage that
you're getting from a specific lender doesn't let you prepay to the maximum
amount that you are willing to do, you would want to discuss that with them
beforehand and say 'I want to prepay 20%
of my original mortgage balance every year. Can I do that?' and they might come
back to you and say '10% that's the maximum you can do. Anything over that now is
you're going to be penalized.'
So now it doesn't fit your budgeting in your
criteria I would actually go and speak to a lender that actually fits.
Another really good one is something called a mortgage cash account which i think is
amazing. So what happens is any time you put large sums of downpayment
which is above your normal mortgage payment, let's say your lump sum payments
it actually reduces your mortgage by that amount but also sits on
something called a mortgage cash account. So let's say in the future you have an
emergency, you have a need for that fund, you can actually go back into the bank
and actually take that money out. You don't have to re-qualify for that
which is a great incentive to add, which is built into the mortgage. A lot of people
would not realize that if they didn't actually go into the nitty and gritty terms.
So definitely find out. There's always more than just a rate
that's attached to the mortgage. Terms and conditions are really really a big
part of it because at the end of the day that's gonna impact you more than let's
say a point one difference between lender A or lender B
so point one difference to me is not make or break, but the terms and conditions can be make
and break for clients.
So the question of the day I have for you is:
How is your experience with a mortgage approval process and do you have any tips?
Let us know in the comment section below, and if you want to know more about the mortgage
approval process, watch this video playlist here as well as our other
videos on home financing which you can see here.
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