Mortgage Application

What is a Mortgage Application

The mortgage application process entails the submission of a document to a lender while applying for a mortgage loan to obtain real estate. The extensive application contains information about the purchased property and their employment history. Below is the list of information that usually exists in this application.

• Financial viability
• Employment History
• Credit History
• And Information regarding the assets and liabilities.

This is the first step an applicant must take to secure funding for a property in Canada. The information provided in the application would be meticulously assessed, so the applicant must ensure complete accuracy while filling out the form. It is to be noted that the decision to grant the amount would be based on the application.

The applicant must also submit a photocopy of the real estate listed or information regarding the size of the plot, plans, and location in case of a new property.

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Mortgage Application Requirements

The contents of the mortgage application generally include information on the:

Borrower

This section entails personal details of the borrower, such as:

• Residential Proof
• Martial Status
• Dependents (if any)
• Type of credit, i.e. whether the application is joint or individual
• Date of Birth
• Social Security Number
• Income
• Address of the current employer

In addition to the abovementioned information, the applicant must submit documents such as bank statements and salary slips. The applicant may produce an income tax return for the last two financial years in case the individual is self-employed.

Financials

This section requires the applicant to mention information regarding the assets and liabilities of the concerned individual.

• Assets to be mentioned include details of the bank and savings accounts of the applicant, certificates of deposits, and brokerage accounts for stocks and bonds.
• Liabilities shall include any revolving credit, such as credit cards, personal loan information, or other outstanding debt.
• Information regarding the valuation of any other real estate owned by the applicant.
• Rental income

Property

This section includes details regarding the property the applicant is interested in purchasing.

• Address of the property
• If the applicant obtains the property with a goal, rent it out. Then the expected rental income shall be mentioned.
• The loan amount and the type of loan

Declaration

This section requires the applicant to answer a series of questions concerning the intent of the purchase, the utility of the property, or any other legal or financial matters not mentioned in the application. The questions are generally framed like this:

• Whether the property acquired will serve as a primary or secondary residence?
• Are there any ongoing judgments, lawsuits, or liens against the applicant?
• Does the applicant have any past foreclosures, or whether they are a guarantor for another loan?

Acknowledgement

This section requires the applicant to sign acknowledging every information provided in the application is true and accurate.

• The information submitted will be evaluated and verified by the bank’s underwriter. The underwriter would examine and determine the loan amount and the interest rate based on the application.
• In case the mortgage application is approved, the bank will send a loan estimate detailing closing costs and a commitment letter.
• The applicant would be liable to pay a deposit on the closing costs to balance the cost of an appraisal.

Overview of Steps involved in Mortgage Application Approval

The mortgage financing process can be boiled down to 3 stages. The first stage is the discussion stage which involves a consultation with a mortgage broker to evaluate the applicant's situation and decide on the next course of action. The second stage is the Pre-approval stage, where the applicant produces the required documents for assessment. The final stage is the Approval Stage, where the applicant formally seeks the financing of the mortgage, and other vital details concerning the mortgage are finalised.

Discussion Stage

In this stage, the interested individual initiates a conversation with a mortgage broker to assess the requirements and determine whether the applicant is financially eligible to apply for a mortgage. This step enlightens the individual on the requirements they have to fulfil to commence their journey as homeowners. The concerned individual would be notified of important information like the amount they can borrow from the banks and the interest rates levied. This stage conditions the individual before they start their mortgage application.

Pre-Approval Stage

In this stage, the applicant submits the mortgage application and all the necessary documents. It is to be noted that producing all the required documents is a highly crucial step and should be completed with utmost sincerity. As the documents requested are assessed and ultimately determine the mortgage approval.

A pre-approval from a lender substantiates the approval of a mortgage application. The applicant would be free to shortlist properties within their budget and even make them an offer.

Approval Stage

The application is submitted to the selected lender with documents, financial details of the applicant, and property details for which the mortgage is applied. The application then enters an electronic queue before the underwriter’s reviewal.

• Mortgage Underwritingis determining whether the applicant is eligible for a mortgage by evaluating their credit worthiness. The lenders examine the application against the guidelines to assess whether the risk is acceptable or not. The key factors which are taken into account are:
1. Income
2. Credit
3. Equity
4. Concerned Property
• Commitment Processingis the next step of the mortgage application process after the underwriter approves the loan. The conditions will specify which documents are required to be submitted to verify the applicant's income, employment, and assets. The lender will then review the documents requested and, if satisfied would, approve the amount.
• The lender disburses the loan amount to the instructed bank account on the Funding Date. Upon receiving the amount,the realtor would formally register the applicant's name on the property's title.

Pointers for your Mortgage Application

The applicant can refer to the below-mentioned tips to ease the application process for their mortgage.

Evaluation of Credit Score

• The credit score is segmented into five categories:
1. Poor
2. Fair
3. Good
4. Very Good
5. Excellent
• The credit scores will run from 300 to 900.
• An applicant shall be mindful of their exact credit score.
• The credit score of the applicant will determine the mortgage rates. A higher credit score will ensure a low mortgage rate.
• Ideally, the credit score of the applicant should be at least 660.
• In addition to the credit score, the credit report will also factor in information regarding any late payments, credit history, and the overall debt levels of the applicant.

Set Aside a Larger Down Payment

• The applicant should reserve a substantial fund for the down payment.
• A significant downpayment on the purchase of the property would reduce the burden on the loan, which would also diminish the interest levied on the loan.
• The minimum down payment depends on the value of the property. If the property is valued at
1. Less than $500,000: 5% of the purchase price.
2. $500,000 to $999,999: 5% on the first $500,000 and 10% of purchase price above $500,000.
3. $1 Million+ : 20% of the total purchase price.
• The downpayment amount is also factored in a while assessing the mortgage application.

Demonstrate Income Stability

• Post coronavirus, the income stability of the applicant has become more vital.
• The bank prefers applicants who are employed in full-time roles as it substantiates their capability to make repayments.
• Stable employment also helps the applicant to get better mortgage rates.
• A self-employed individual must showcase their operations' consistent profitability for a prolonged period. The concerned applicant can also employ a licensed mortgage broker to ease the mortgage application process.
• If the applicant is applying for a joint loan, then it is ideal that both the participants have full-time jobs.

Close-off Existing Debt

• The applicant can pay off any outstanding debt before applying to better their chances of approval.
• The applicant would be less burdened if they settle any outstanding debt before the mortgage amount is disbursed.
• Any outstanding debt might impact the applicant's debt to income ratio, which is meticulously evaluated before the approval of the mortgage.
• The existing debt would also influence the loan amount and the mortgage rate.

Mortgage Pre-Approval

• Getting pre-approved from the lender before submitting your mortgage application is advised.
• The lender will evaluate the financial viability of the applicant and will accordingly pre-approve the individual for a set mortgage amount, interest rate, and tenure.
• The validity of the pre-approval lasts 90 to 120 days.
• A pre-approval from a lender liberates the applicant to house-hunt within their budget.

Mortgage Rate

• A better mortgage rate would lessen the monthly payments, ultimately making the mortgage more accessible to service. This would allow the applicant to borrow more.
• The interest rate on the mortgage is not solely based on the mortgage application. Applicants can consult mortgage brokers to identify lenders who offer lower mortgage rates. The brokers give personalised advice to the applicants, which can be useful.
• Applicants can also start researching and comparing the mortgage rates across the county to get the best deal.

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