Below, the process of purchasing home and getting a mortgage is merged to make you familiar with the whole process you would be involved in, having the knowledge helps you not to worry about the details:
1. Pre-Approval
a) Mortgage Application
b) Credit Report
c) Required Documents
2. Search for a home -> Realtor Agent
a) Put an offer
b) Present offer to your mortgage broker
3. Mortgage Commitment
4. Appraisal
5. Inspection -> Inspector
6. Removing the financial subject -> Buyer & Realtor
7. Putting the deposit
8. Down payment
9. Completion -> Lawyer
a) Closing cost
10. Disclosure statements
11. Possession
12. Mortgage Insurance
1. Pre-Approval
Pre-Approval is the first step to start a mortgage. Once your broker finds out about borrower’s income and debts, a determination can be made on how much the borrower can pay for the mortgage. In other word the client will know about the maximum house price he/she can afford. It is recommended that before looking for a home get your pre-approval done to save your and realtor’s time.
1.a Mortgage Application
Mortgage application is the first step that the mortgage broker gathers client’s information and also receives client’s authorization to do a credit check for the client.
1.b Credit Report
A credit report is one of the essential parts in getting a loan and mortgage. It shows all the debts a client has and also client’s habit of payments for those debts. Credit report along with the credit score which comes with it is the major element for lenders/banks to give mortgage.
1.c Required Documents
If the client is salaried employee needs to provide a job letter from employer along with the last 2 pay stubs. For a self employed client a business License or registration and last years NOA is required.
2. Search for a home -> Realtor Agent
Knowing your affordability with the help of mortgage broker, you know your limit in price of the house. Your realtor agent can help you to find the home suitable to your needs and budget.
2.a Make an offer
The client’s (Buyer’s) realtor agent would negotiate the price with seller’s realtor agent to agree on the price of the house. Once the offer is mutually agreed a Contract of Purchase and Sale is prepared by Buyer’s realtor agent. This contract has the price, deposit amount to realtor agency, Subject removal date, which is usually one week to 10 days after the date of the contract. This date is important as the buyer has time to remove all conditions such as financial and inspection or review starata notes (in case of apartments, townhouses), Completion date which is the date money is advance by the lender/bank and client signs documents in the lawyer office. Possession date, which is the date buyer takes the possession of the house. Also in includes all details related to the house and fixtures.
2.b Present offer to your mortgage broker
The client/Realtor agent needs to present the contract of purchase and sale which is an accepted offer to the mortgage broker. One the offer is presented an approval is requested from lenders by mortgage
broker and it is a live deal.
3. Mortgage Commitment
This is the document submitted by the lender/bank to the Mortgage Broker. The mortgage broker presents the Mortgage Commitment which is an approval before subject removal date to the client. This is in fact the approval. There are conditions stated in this document, such as appraisal, down payment. The client can remove the subject of financing when he feels confident that he can meet the conditions listed in this commitment letter.
4. Appraisal
An appraisal is needed by the lender to make sure that the property worth the amount of the purchase is being made. Each bank/lender has a list of approved appraisers that the mortgage broker chooses and orders the appraisal for subject property. The cost of the appraisal is usually charged to the client.
Usually the Comparison method is used in appraisal, which uses other properties of similar size, quality and location that have recently (last few months) sold to determine value.
5. Inspection
One of the subjects in the contract of purchase and sale is usually inspection. This is done at the will of the buyer to make sure the property has not a major defect. The expense is paid by the buyer
6. Removing the financial subject
Once the client received the commitment letter (approval) and feels confident that he/she can remove the conditions, He/She can remove the financial subject and state it to the realtor agent.
7. Putting the deposit
This is the amount that is deposited to real estate agency trust account after removing all the subjects (subject removal date). This money is usually non refundable and is adjusted in lawyer’s office.
8. Down Payment
The down payment buyer agreed to should be shown with documentation to mortgage broker prior to the closing date. This is necessary so that lender can verify the source of down payment.
9. Completion
One the bank/lender received all necessary documents from client, the bank will send the instruction to the lawyer/notary that the client has chosen. The lawyer/notary will prepare all necessary documents and asks the buyer to sign the paper work. Also, the down payment is paid in trust account of the lawyer.
9.a Closing Cost
The lawyer is responsible to calculate all the closing cost which is not part of the mortgage. Costs such as Property Transfer Tax, Legal Fee and all other adjustments (Strata if exist, property tax, Water). The closing cost is also paid to the lawyer.
10. Disclosure Statement
The client needs to sign the disclosure statements with Mortgage Broker which will disclose all the costs of the purchase and mortgage cost to the borrower. The effective interest and also the brokers fee if existed.
11. Possession
Usually is the date after the closing date (or other date as stated in contract of purchase and sale) in which buyer takes the possession of the subject property.
12. Mortgage Insurance
This can be presented by the lender/bank or can be waived by the buyer. Buyer has the option of getting the mortgage insurance (term life insurance) from an Insurance Agent or advisor.
