Applying for a mortgage loan in Canada can be a tricky process for beginners. This is why most people prefer to work with mortgage professionals in Canada to get their first-time home buyer loan. That said, the mortgage application process in Canada follows a specific sequence, from filling in the paperwork to finally appending your signature and getting a mortgage. 

This article discusses this process extensively, serving as a reliable guide whether you are a first-time applicant or you want to renew your existing mortgage. So, let’s get to it without wasting time! 

• Find and choose a potential lender. 

The first step is to find a potential lender once you have enough savings for a down payment. There are two ways of doing this – you can either work with the best mortgage broker around or go directly to the lender through other channels. 

The easier option is to work with a mortgage professional. They can easily help you determine if you meet the various lender’s qualification requirements and provide you with the most suitable options you can afford. Alternatively, you can meet different lenders, including licensed private lenders willing to lend you their own money on the security.  

Either way, the bottom line remains to get a mortgage with favourable terms, rates, and conditions.  

• Getting pre-approved. 

The second hurdle is to secure a pre-approval from the chosen lender or mortgage broker. Pre-approval helps determine how much mortgage you qualify for, alongside the amount payable as monthly payments. With a pre-approval, you have a higher chance of getting your mortgage approved. However, it doesn’t translate to mortgage approval. 

Mortgage pre-approval is a brief process. You need a credit report prepared by a third party, showing your credit history and credit score. The report also shows your payment history and your lines of credit. Your lender needs this information to determine a loan amount for which you are eligible. 

At the end of the mortgage pre-approval stage, you will get a written confirmation for a specific amount at a certain interest rate, which will be open for a limited period. 

• Preparing the necessary documents. 

Aside from the credit report, you need a few other documents to confirm the information you have provided to your mortgage broker or mortgage professionals in Canada. You will be required to provide the following at the first meeting with your lender or mortgage broker;

• Employment information and salary confirmation
• Information on any other sources of income you may have
• Your banking details
• Assets proof and details of any other debt/loan you are servicing
• Evidence of down payment
• Canada Revenue Agency Notice of Assessment (NOA)
• Information on the property you are interested in – address and copy of the real estate listing
• Mortgage pre-approval certificate
• Estimated monthly housing costs
• Proof of funds to cover closing costs (if any) for people seeking first-time home buyer loans. 

These documents may appear to be a lot, but it is expected, considering the importance of mortgage as a financial commitment. We advise that you ensure honesty when providing this information. If there are errors in your application due to misinformation, you may end up with the wrong mortgage type or arrangement, in addition to other serious consequences like jail time. 

• Choose your mortgage.

There are different mortgage types out there. It is important that you go for one that suits you the most. 

Closed vs Open Mortgages

If you plan on making additional payments to pay off your mortgage earlier than expected, an open mortgage is your best option. It offers this flexibility, although the interest rate can be higher than the closed mortgage option. 

You are paying a lower interest rate for closed mortgages, but there is a limitation to how much extra money you can add to speed up your mortgage payment. In most cases, attempting to pay prepayments higher than the set limits may attract penalty fees because it violates the mortgage agreement. 

Variable vs. Fixed Mortgage

Your first-time home buyer loan may come as a fixed-rate or variable-rate mortgage loan. For fixed rates, the mortgage rate and payment are unchanged during the mortgage term. The opposite is the case in variable mortgages – the rate and payment may change, depending on changes in the lender’s prime rate. 

Variable mortgages often offer lower mortgage rates because fixed mortgages allow you to know your exact payment rate and mortgage. 

Insured vs. Uninsurable vs. Insurable Mortgage

For insured or high-ratio mortgages, you will pay mortgage default insurance to protect the lender. The conventional or insurable mortgage requires you to pay at least a 20% down payment on a home without paying the mortgage default insurance. Uninsured mortgages do not conform to the government’s specifications of insurable mortgages; hence, they are not insured by any mortgage insurers. 

When choosing your mortgage type, you should look out for the amortization period, the fixed and variable rates, and the mortgage term. 

The Amortization Period is how long it takes for you to pay the principal amount of the loan with interest. The amortization period you choose determines your monthly payment. For instance, if your amortization period is longer, you will pay smaller monthly payments and higher interests. 

• Finalizing the application.

Once you get approval, you can proceed to complete the application directly with your lender or ask your best mortgage broker to complete your application with all the necessary information. This is often followed by signing a written acknowledgement disclosing the risks associated with the mortgages you are signing up for. 

It is always advisable to read the application carefully before appending your signature. If the application is incomplete or doesn’t reflect the agreed terms, do not sign. 

• Negotiation and commitment. 

With your lender ready to advance the loan, you can proceed to negotiate the deal. This is where you discuss and finalize the mortgage rate and term for the loan. If this stage is successful, you get an official Mortgage Approval or Letter of Commitment. Again, ensure that you check all the terms and conditions before signing and returning the agreement. 

• Closing.

The closing process starts once your lender receives the signed agreement. If further discussions are necessary, your mortgage broker/agent may continue to represent you. 

We can help you navigate the process.

Are you too busy to oversee your mortgage application process? Do you need the best mortgage brokers in the industry to handle your mortgage pre-approval? We are here to help. At NVR Mortgages, we are dedicated to making your first-time home buyer loan seamless for you. 

Our processes are suited to give you the best possible options with convenience. We handle all the hard work while you focus on your business or family. Reach out today, and let’s discuss your mortgage needs.

By Yogesh Lakhani