Mortgage approval process in Canada

Initial discussion: When you start the journey of buying a home, getting a mortgage is more important than anything else. You can start by having initial discussions with your bank or lender, and they should give you a good idea about how much debt amount they can give you for your home. Although most of the banks will not commit to any amount in writing unless you get pre approval, you will get a ballpark idea.

Pre Approval: The next and very important step is to submit your documents to the lender and get pre approval in writing. The lender will verify your documents and some even run a credit check to look at your credit history and score. The pre approval will give you a firm number that the bank could lend you however this approval would only be valid for a few months, maybe three. The pre approval will also come with terms and conditions and May state that the lender or the bank will hold the mortgage interest rate for 90 days or so. This means you could have 90 days to get your mortgage from the bank at the same interest rate stated in the pre approval. This could be helpful if you expect the prime interest rate to go up in the near future. After the pre approval, you may be able to shop for a home with confidence knowing that the bank has pre evaluated your application.

Application: After you have submitted an offer on the desired property and it has been accepted, do not waste any time to get your documents together and submit an application with your bank or lender. The processing time for mortgage applications increased significantly during the pandemic and you do not want to waste any time at this stage. Find out which lender is reliable and is giving you the best interest rate and then submit your application. You would need your income tax notice of assessment, pay slips, letter from your employer, credit report, credit card or loan statements plus a few other documents in addition to your offer of purchase. You should also look for a real estate lawyer and provide this information to your bank or lender. 

Signing: Expect back and forth multiple times as the lender verifies your documents. They could even ask you to pay off your short term debts including line of credit, credit card and car loans. Once the underwriter is satisfied with your documents and has verified your income, they will issue a conditional approval with terms and conditions. This process from application to signing took me about four weeks in 2021 with a A rated Canadian bank. Expect the lender to ask for more documents if you are self employed as that process takes longer. Once you agree with the conditional approval from the bank and fulfill all conditions including paying off short term debt, the bank employee will then call you to sign the final mortgage documents. This signing is very important and lists the term of the mortgage and the interest rate approved for your mortgage. By this time, most of your work on the mortgage application will have been completed.

Mortgage Instructions: A few days before closing, the bank will send mortgage instructions to the lawyer which would state what he needs to do before receiving the funds. Just make sure you call your lawyer and check with the bank that the instructions have been received. Your real estate lawyer should also send you a statement showing all your transaction amounts and get the legal documents signed by you. 

Closing & Transfer of Funds: Finally on the day of closing, most likely in the morning, the bank will transfer the mortgage funds to your lawyer, who will then send these to the sellers lawyer along with your down payment. After your lawyer does a title search and transfers the property in your name, both lawyers will agree that closing has been completed and hand over the keys to you. Congratulations, you have just bought yourself a home!