There are many reasons that clients seek a mortgage.
They may be purchasing a home (primary residence, second home, cottage, rental property etc.) They may be looking to refinance a property, thereby extracting equity to for renovations, to pay off other higher interest, unsecured debt (consolidate), to invest elsewhere, to pay for education. Everybody has their own reasons to refinance.
Whatever the reason, a mortgage preferably starts with an interview. This could be over the telephone, in person or even by email. But there are certain fundamentals that should be discussed in advance:
1. What are your goals? This could be anywhere in the spectrum from "pay off my home as quickly as possible" to "leverage the equity in my home to invest in stocks".
2. How is your credit? Before we do a credit check, it is best to discuss it first because for example, if you already know that it's bad and it needs to be "fixed" before proceeding (we can teach you how to do that), then it is best if we don't damage it further by doing an unnecessary credit check.
3. How do you derive your income? Some sources of income can be used and others not. We need to prove to the prospective lender that you are capable of affording this mortgage.
4. Do you have any other debts or payments? Unsecured debt like credit cards and unsecured lines of credit weigh very heavily on your ability to afford a mortgage so they need to be taken into consideration. Other considerations: other payments like condo fees, car/lease payments, property taxes and child support/alimony.
5. What is your down payment and where is it coming from? If you are purchasing a home, this would need to be some form of savings (investments, sale of a property, inheritance, personal savings etc.) or a gift from an immediate family member. If you are refinancing your home (i.e. increasing an existing mortgage or introducing a mortgage to a home that was previously paid off), then the down payment may be coming in part or wholly from the equity (difference between the mortgage and the value of the home).
6. If you are refinancing, what do you think your home is worth? We don't want you to incur the time or expense of an appraisal if you don't think the value is there. We try to be as conservative as possible to avoid disappointment.
7. Do you have any property tax or income tax arrears?
Once these points have been clarified in advance and the decision is made to proceed, the next step would be to fill out an application either in person or online, and run a credit check. This is where an experienced broker is important. He will analyze and suggest options and "shop" around to different lender to the best rate, product and terms according to your needs.
If you are looking for a pre-approval, then it is time for you to go shopping for home! We always recommend that any offer is conditional on financing to protect you. Once you have a conditional offer, we would ask you or your real estate agent for a copy of the offer and the (MLS) listing (if applicable).
Once an approval is issued (this is a called a conditional approval because every approval comes with conditions) we will send it to you for your review to make sure it is accurate and reflects everything that was discussed. Since even official approvals are still conditional (you need to prove to the lender with documentation things like your income and downpayment source), we may ask for documentation up front like your last paystub and or a job letter just to be sure.
The next stage is to sign the mortgage documents to make it official and to provide the lender with all of the documentation requested (which varies from lender to lender and depending on the situation), to satisfy all of the "broker conditions". Typical broker conditions are:
letters of employment
bank statements to show savings
property tax statement
notice of assessment to show income tax balance
account statements for debts
Once these conditions are fulfilled, the lender instructs the real estate lawyer on their conditions and you meet with the lawyer to fulfill those.
When all conditions are fulfilled (preferably prior to the day of closing), on the day of closing the money will be released by the bank and exchange hands. The lawyer will deduct their fees from the proceeds of the loan and transfer the balance to you (in the case of a refinance) or they will take their fees and transfer the money to the seller's lawyer (in the case of a purchase).
Mortgage Education and Advice in a Stress-Free Environment
651 Fennell Avenue E, Hamilton, Ontario
905-574-9200 Ext. 215