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 Welcome to homebuyer school brought to
you by Brookfield Residential Hi everyone I’m Karl. Welcome to another
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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. Don’t forget to subscribe to keep hearing from the experts, and we’ll
see you in our next video

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