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A simple mortgage application
This post will be of interest primarily to the First Time Home Buyer & newer Realtors.
Most Realtors will request that clients be pre-approved for financing before showing them properties, let alone writing offers. This is absolutely a realistic stance for a Realtor to take. Over the past few years lending guidelines have tightened significantly and clients are often surprised to find they do not qualify for the same amount as they might have a year ago.
Here is the (relatively) complete step-by-step process from pre-approval to completion.
Step One: A Simple Mortgage Application (Far simpler than you might expect)
A mortgage application is as easy as a simple phone call to a skilled mortgage broker (i.e., 778-233-2377)
Most clients are unaware that 90% or more of their initial questions and an actual pre-approval (and 120-day rate hold) can all be completed by telephone. When I advise people that during our first phone call we can make it all happen right then and there, there’s a huge sense of relief on the other end of the phone.
Strictly speaking there is no need to arrange a face-to-face meeting up front. There is plenty of time for that later in the process.
Within what is typically a 40-minute telephone conversation, we get to know a few things about how the other thinks and operates. We also complete a mortgage application in a conversational process (faster and simpler than online or paper and pen) which generally allows me to advise my clients with 95% accuracy as to the maximum mortgage amount they qualify for. In addition, I am able to send that complete application out to a lender, instantly locking down a variety of mortgage-rate options.
The most skill-testing question I ask is the client’s SIN. Pretty well every other answer is top of mind, and gathering a stack of documents up front is rarely required.
At the end of the phone application process I will send out an e-mail titled ‘documents’. This is a comprehensive list, tailored during our conversation, of the specific documents that a lender will request in order to complete a mortgage application.
With a complete application in the system, a Credit Bureau review, and the lender locking in rates, the client is now ready to write an offer with confidence.
STEP TWO: WRITING THE OFFER
As a buyer, your use of a Realtor for truly independent representation is vital, and (as with my own services) effectively free. Even if you are dealing with a developer’s sales centre, enlist a Realtor and protect your interests.
My clients write offers with confidence, thanks to what we achieved with Step 1. Even more important, they include ‘subject to the buyer receiving and approving satisfactory financing’.
- ‘But hey I thought I was pre-approved why bother with a subject to financing?’
- Although you as an individual may well be platinum plated, a variety of other variables surrounding the property itself can turn off a lender. That is why ‘subject free’ is rarely a prudent move. Such property-based concerns include, but are not limited to: a remediated grow-op, private transaction(non MLS), a non-arms length transaction (family), vendor take-back financing, remediated drug lab, lease land, First Nations lease land, age-restricted properties, special assessments (pending or otherwise), any reference to water or leaks in the minutes, any reference to ‛building envelope’, a ‘fixer upper’, insulation or wiring concerns, a commercial zoning component, livestock is present, etc.
There are a few special steps that can be taken when there is no other choice. That is something to discuss on a case-by-case basis. But as a general rule one never writes a real estate offer subject free. Not prudent!
STEP THREE: AN ACCEPTED OFFER
Once we have an accepted offer we update the file with the subject property details and forward the application to the lender for immediate review. It typically takes 24 hours to receive the initial response. During this time we like to gather the last few outstanding documents from the client.
Within 72 hours we typically have a documented commitment back from the lender, ideally with all conditions met.
Often there is an appraisal required. Nearly all clients are unaware of the expense (~300.00 on average). It is often an important piece of the transaction, that can sometimes hold things up.
We have relationships with the top professional firms that are not only approved of but highly regarded by every lender we work with. These relationships have helped us turn around appraisals in tight situations numerous times over the years.
STEP FOUR: THE BROKER’S COLLECTION OF APPROVAL DOCUMENTS
Just prior to subject removal is when the majority of my clients come to my office to review and sign off on a stack of mortgage related documents ranging from 14 to 22 pages. It is important to me that we take the time to work through these documents with a reasonable amount of attention and detail. It is important to most of my clients as well. In certain cases I will e-mail or fax this collection of documents to the client and we will do the review by telephone. Ultimately I do not require original signed documents returned; fax or e-mail is fine.
Once this final, signed collection of documents is returned to the lender, with all conditions met, then the final documents are released to the lawyer’s office.
STEP FIVE: SIGNING AT THE LAWYER’S OFFICE
The final step to finalize the transaction. We have aligned ourselves with professionals who are very highly regarded in the industry.
When it is time to meet with the lawyer or notary, there is a lot going on – packing- finalizing moving arrangements- arranging for transfer of utilities, and setting appointments, the list goes on.
Not only our the lawyer and notary that we work with professional, but often times, they are mobile for our clients and can come and meet you when it is convenient for you! With our clients’ permission, we set up their file directly sparing the client a 30- to 60-minute redundant process.
In rare cases where a file has come to my desk within as little as two days of the closing date, dealing regularly and closely as we do with the appraisers and lawyer/notary has allowed us to work small miracles and close files in record time.
For standard transactions the process is extremely smooth 99.9% of the time. We are working diligently on that 0.01%.
I hope this has brought some clarity to the steps involved in mortgage financing for your first purchase transaction