What's involved in buying a home and getting a mortgage?
Step 1: Pre-Approval
When you first decide you want to purchase a home, it is wise to get a pre-approved mortgage. The pre-approval will tell you how much of a mortgage you qualify for, ensuring you are looking at homes in your price range. Luckily, you're in the right place! I can arrange a pre-approval quickly and easily. Please click here to apply now.
Step 2: House Hunting
Once you know your price range, your REALTOR® will begin researching available properties and will show you homes that fit your criteria. If you do not have a REALTOR® please let me know, I can give you a list of reputable ones.
Step 3: Offer in and Accepted
Once you’ve found the home you are interested in, you will make an offer on the property. You will need to make your offer conditional on obtaining financing. Your REALTOR® will help you to add a condition in your offer that makes it “subject to financing,” meaning that you are asking the seller for some time to complete your financing, before finalizing your offer. Your offer may also have other conditions, such as “subject to a satisfactory home inspection” or “subject to review of the condo documents.” Once the offer has been accepted and signed by the seller, you will need to provide a copy of the purchase agreement to me so I can get started on your file!
Step 4: Lender, Insurer, Appraisal
This is where my job really begins. Once you make an offer on a home you will be given some time to complete your financing and arrange for a property inspection (and deal with any other conditions you have put in your offer). This is called the "condition period". Generally speaking, you are usually given approximately one week to complete your conditions. At the time of your offer you will give an initial deposit on the property (the amount is negotiable). Please ensure you have easy access to enough funds for your deposit, via a personal line of credit or cash in a bank account; this is especially important if your down payment is coming from an RSP as you will not have the RSP funds available at the time you write the offer on the home.
During the "condition period" I will send your file and property information out for approval and will work with the lender, insurer, and appraiser to get you final approval on the financing. Once received, the lending institution sends your information to the default insurer, if applicable. The default insurer underwrites your file and either conditionally approves it, asks for additional information/modifications to the deal or declines the file. If your down payment is 20% or more, you will usually require a property appraisal. I may ask you for further documentation at this time depending on the specifics of your file. You will need to collect the requested paperwork and submit it to me in a timely fashion, so the underwriter has a chance to review and approve your documentation. If approved, your lender will ask me to forward all supporting documentation to them (income, down payment etc). They will review the documents to ensure that the information contained in your application was accurate.
Once your documents have been reviewed, and approved, and we have met to sign your mortgage documents I will receive an email from the lender explaining that your financing conditions have been met. I will forward this email to you so you can then remove the conditions on your offer. Generally speaking, at this time, you will give a second deposit to the seller.
Step 5: Firm Sale
Once you have met all of your financing conditions, you will remove the “subject to financing” condition from your purchase contract. This is done through your REALTOR®. You may remove other conditions at the same time (if they have been met), such as “subject to a satisfactory home inspection.” Once all of the conditions are satisfied, you have a “firm sale”. A firm sale means that you have unconditionally purchased the property. The lender will begin to prepare mortgage instructions (paperwork) and, once completed, they will be sent to your lawyer’s office. If you do not have a lawyer, please let me know. I can send you a list of a few lawyers that I work with on a fairly regular basis. Now you simply wait until you get closer to your possession date.
Step 6: Moving Details
The lawyer will receive and prepare your mortgage documents. Use this time to start preparing for the move.
Step 7: Meeting with your Lawyer
The lawyer will contact you to arrange for a time and date for you to visit their office to sign the mortgage and legal documents. Approximately one week before your possession, you will meet with a lawyer to sign additional paperwork and, at this time, you will bring your lawyer a money order/certified cheque for the balance of your down payment (your down payment minus any deposits you have already given to the seller) as well as your legal fees.
Step 8: Possession
Time to move into your new home! The possession date is the day the money is given to the sellers and the property is transferred to your name.
Step 9: First Mortgage Payment
Unlike with rent, which is paid at the beginning of the month, you make your mortgage payment at the end of the month. For example, if the purchase of your home was completed on June 1, and you chose monthly payments, you will not have a mortgage payment until July 1. You will receive the details of the mortgage repayment from your mortgage lender.
When you purchase your home, there are a number of key players who will help you throughout the process.
Your REALTOR® is your partner in the home buying process. Once your REALTOR® understands what type of home you are looking for, he or she will begin researching the market on your behalf. The REALTOR® will search available properties for sale and will show you the ones in your price range that meet your criteria. Once you have found the home you are interested in, your REALTOR® will prepare an offer and represent you in the negotiation process. Generally, you do not pay a fee to the REALTOR® who represents you when you are buying a home. The REALTOR® is paid by the seller of the home. Real Estate Agents are licensed through provincial bodies and are knowledgeable about the markets they work in.
Your Mortgage Broker (That's me!)
I will take time to understand your financial needs and will research the market to find a suitable mortgage product for you. As your Mortgage Broker, I will represent you to the lenders, process your file, submit your documentation to the financial institution as well as ensure the process goes smoothly and that your approval is completed within the deadline agreed to on your offer to purchase. There are no fees to have me act as your Mortgage Broker, as I am paid by the lending institution.
Great Reasons to use me as your Mortgage Broker:
- I have access to different lenders, banks, trust companies, investors and financial institutions.
- Fast credit and loan pre-approvals with no cost or obligation. (Some conditions may apply)
- I'm an expert at matching you with the best-suited mortgage.
- Get mortgage rates at wholesale, guaranteed up to 120 days.
- Because mortgage brokering is my full-time occupation, I'm up-to-date on mortgage rates, terms and pre-payment options available on the market.
- I only specialize in mortgages and am knowledgeable on current market trends.
- The Mortgage Brokering industry increases competition in the marketplace, thus keeping rates low.
- I save your time and money. And, we all know, time IS money! I have a 20-year background in Financial Planning, so I am able to assist you by providing general advice in ALL areas of your Personal Finances.
- I have a vested interest in satisfying your needs since my business relies heavily on referrals and repeat business.
I will work with you to choose a suitable mortgage lender. The majority of your contact with the lender will be after your mortgage funds as I will be your main point of contact throughout the mortgage process.
Mortgage loan insurance is required by lenders when homebuyers make a down payment of less than 20% of the purchase price. Mortgage loan insurance helps protect lenders against mortgage default and enables consumers to purchase homes with little or no down payment — with interest rates comparable to those with a 20% down payment. As with any insurance, there are insurance premiums to be paid. The amount of the premium varies and can range between 0.60% and 4.00% depending upon how much of the purchase price/home value is financed with a mortgage loan (Mortgage insurance premiums are higher for self employed individuals or rental properties). There are currently three mortgage default insurers in Canada: CMHC, Genworth and AIG.
Please note, Mortgage loan insurance is not to be confused with mortgage life or disability insurance which guarantees that your remaining mortgage at the time of your death will not be a burden to your estate or that your mortgage payment will continue to be paid should you become disabled.
The appraiser’s role is to provide the lender with a market value of the home. The market value is the price at which the home would sell with reasonable exposure on the market to a large number of buyers. Your Mortgage Broker will arrange the appraisal for you. The cost of an appraisal is approximately $300 and is required if your mortgage is conventional (you have a down payment of 20% or more and the mortgage is not insured through CMHC or Genworth). The appraisal cost is the responsibility of the borrower.
A home inspector provides you with information on the construction on your home. The inspector will inform you of any repairs that need to be done in the near future and will let you know what types of repairs you can expect in the next few years. Your REALTOR® can provide you with some names of quality home inspectors. The cost of the home inspection is the responsibility of the purchaser.
Your lawyer (or notary) will transfer the property to your name and will draw up and register the mortgage documents. Your lawyer liaises with your lender and REALTOR® to ensure they have all of the required paperwork to process the sale. As your Mortgage Broker, I have contacts with several lawyers throughout the Edmonton area and can refer you to a lawyer if you do not have one. The cost of legal fees is the responsibility of the purchaser.
In order to process your mortgage, mortgage brokers require documentation to support your mortgage application. Please note that there may be other conditions not listed here that may also be required.
Proof of Income
You will need to provide the following documents for proof of income:
- Employment confirmation letter: this is a letter written by your employer (usually the human resources department or direct supervisor) confirming your position, salary amount (or hourly wage and guaranteed number of hours worked per week) and length of employment with the company. It must also have a signature from the individual who wrote the letter as well as the individual's contact information.
- A current paystub (dated within the last 30 days).
- Your last two years Notice of Assessments.
Commissioned or self-employed
- Your last two years T1 Generals (the T1 General or T1 is the form used in Canada by individuals to file their personal income tax return. Your tax preparer provides you with a copy of your T1 Generals when you file your tax return).
- Your last two years of Notices of Assessments.
Down Payment Verification
You will need to provide the following documents to confirm the source of your down payment:
- If your down payment is from savings in your bank account, provide three months of bank statements showing an accumulation of the down payment funds. The statements must state your account number and name.
- If your down payment is from investments (RSP, GIC, stocks, bonds), provide a copy of a recent account statement.
- If your down payment is a gift, a “gift letter” is required together with proof that the funds have been deposited into your bank account. I will provide you with a blank gift letter for you to fill out.
Estimates of Closing Costs
In addition to your down payment there are other costs involved when purchasing your first home. They include, but are not limited to:
- Legal Fees
A lawyer or notary will be necessary in the home buying process. Your lawyer will prepare the mortgage documents, have you sign the documents, and will transfer the property to your name. (Approximately $1,000 to $1,500)
- Appraisal Fees
If required, an accredited appraiser will visit the home to determine if the price you have offered is what the home is worth. The appraiser will compare recent sales of similar properties to determine the estimated value of your home. He or she will provide a report to your lender that confirms the value. (Approximately $450)
- Property Tax Adjustment
You may have to pay some of your annual property taxes at the time of closing. This would be done when you sign at the lawyer’s office. Because every situation is different, it is best to confirm with your lawyer what you will owe.
- Interest Adjustment
If you have chosen monthly mortgage payments, and your payment comes out on the first day of the month, you may have an interest adjustment. If the purchase of the home closes on July 29, for example, you will have to pay for three days of interest on your mortgage (July 29-31). If the purchase closes earlier in the month, you may have a larger interest adjustment. It is best to find out from your lawyer what your interest adjustment will be.
- Title Insurance
Title insurance is sometimes used instead of a Real Property Report (referred to as an RPR), and may be requested by your Mortgage Broker, lender, or lawyer. Your Mortgage Broker, lender, or lawyer will discuss title insurance with you if it is applicable for your transaction. The estimated cost of title insurance is between $200-$300.
- Fire Insurance
Fire insurance ensures you have adequate coverage to pay off your mortgage in the case of fire. The lawyer will ask for proof that there is fire insurance in place when you go in to sign the papers at his or her office. Ask your mortgage broker for a referral to an insurance agent who will be able to assist you if you do not have an insurance company.
- High Ratio Insurance Premium
When borrowers have less than 20% of the value of the property as a down payment, they must pay a mortgage insurance premium. The premium varies, depending on the size of your down payment or whether or not you are self employed, so you should check the amount with your Mortgage Broker. Most people will add this premium onto their mortgage. You also have the option of paying this amount up front.
- Home Inspection
A home inspector will look through your home and provide you with his or her professional opinion on the construction of the home. The home inspector will advise of any maintenance required and will let you know what kind of maintenance you can expect in the next few years.
- Survey/Real Property Report (RPR)
Most financial institutions require surveys. Surveys confirm where the home is sitting on the lot and make the lender aware of anything unusual about the property. You may be able to get an acceptable copy of the survey from the previous owners and save the survey fee. Title insurance can sometimes be provided in lieu of an RPR
- Utilities Connection Charges
Some utilities charge a move or connection fee. You will need to contact each utility provider to find out their charge.
Purchasing a new home is a very exciting (and stressful) time! Take your time to find the perfect property for your lifestyle and ensure you have the right professionals in place to ensure a smooth transaction. I am dedicated, consistent, conscientious and reliable. I work hard to ensure that your financing is hassle-free and relaxed. If you have any questions in regard to mortgage financing, need a pre-approval or just need some information please contact me anytime!
written by Bobby Perusco
Print a pdf First Time Buyer's Guide HERE.
Mortgage Brokers are independent, trained professionals licensed to represent and provide you with the best mortgage for your particular situation. What’s more, because Mortgage Brokers are experts in residential mortgages, we have the knowledge and expertise required to present a proposal for financing to lenders in the best way possible to increase the likelihood of approval. Because I’m independent, I am not tied to or employed by any of the lenders I have relationships with. I start the process by gathering your financial information to determine what products/rates you qualify for and we’ll decide together, what mortgage, and lending institution, is right for you.
Save time with one-stop shopping
Lenders have different internal policies and rules, so, if one won't proceed on your file, for whatever reason, I will always look for an alternate solution and will approach several other lenders on your behalf. I have access to a large network of Canadian mortgage lenders including chartered banks as well as other lending institutions.
Mortgage Brokers have great rates
Mortgage Brokers get mortgage rates at wholesale, guaranteed up to 120 days. No haggling, no negotiating and no wondering if you've been offered the best deal.
Other than rates, why should I use a Mortgage Broker?
In addition to rates, because mortgage-based financing is the broker's primary business, he or she has developed expertise in what type of mortgage financing each lender prefers to pursue. This kind of knowledge not only results in the most favourable rates for each project, but often whether a project is funded at all.
How do Mortgage Brokers Find Superior Rates?
Interest rates are a concern to borrowers. Because of their daily contact with lenders, Mortgage Brokers know which project or home attracts a favorable interest rate from one institution, but a higher rate at another. Some institutions, in fact, will only accept mortgage submissions from Mortgage Brokers. These rates, and preferences for types of mortgages, can change daily, depending on economic circumstances or based on the size of an institution's portfolio in a particular type of mortgage. Your Mortgage Broker keeps current and knows which lender to approach first. As a result, mortgage rates obtained by brokers are among the best available at the time of placement.
Why should I go to a Mortgage Broker first?
A professional presentation to a lender on the first application will get the best response and save you valuable time and money. Secondary applications with previous credit bureau inquiries may be more costly. Often the success of obtaining mortgage approval depends on the way a proposal is presented and to whom it is sent. Your Mortgage Broker is trained to present your mortgage proposal where and how it will get the most immediate, positive result. You don't call an insurance company for insurance - you use an insurance broker, because of their expertise, product knowledge and rates. So, remember, call your Mortgage Broker first!
How do Mortgage Brokers get better deals than many Banks?
The lenders who work with Mortgage Brokers include traditional sources, such as chartered banks, trust companies, as well as corporate and private pension funds. In addition to these sources, brokers often develop professional relationships with private sources of funds, termed private lenders. These lenders can provide many various mortgage products not available at conventional sources.
Limited credit checks
Mortgage Brokers generally only need to do one credit check. We pull your credit report and submit it to the chosen financial institution. If you were to go to several different banks to apply, each one would perform a credit check, which would lower your credit rating. Besides, you’d probably rather be out house hunting than organizing appointments at banks!
How does a Mortgage Broker get paid?
Mortgage Brokers are paid by the mortgage lender, not you. So, it doesn’t cost you a penny for our service, time and expertise! Like many other professional services (such as insurance brokers), Mortgage Brokers are generally paid a fee when we introduce trustworthy, dependable customers to a financial institution. These fees are standardized so the focus remains on you. There are very rare circumstances where a Mortgage Broker is not compensated by the lending institution for their work, such as arranging a private mortgage. This is extremely rare and if it applied to you, you would be notified in advance that there would be a fee associated with arranging your mortgage. Again, this is extremely rare.
Ongoing support and consultation
Be assured that even once your file has closed and you’re in your new home I will be available to you down the road should you have any additional questions or should your future needs change. As you can see, working with a Mortgage Broker will save you frustration, time and more often than not, money. Contact me today to get started on your application!