*This post was created in collaboration with Alpine Credits
A lot goes into the home buying and financing process in Canada. Once your offer on a house has been accepted, it’s time to apply for a mortgage. But how long does it take to get a mortgage approval, and what do you need to get a home loan?
Key Points
- Mortgage approval in Canada usually takes just a few days, though it could take longer if there are complexities involved in the process.
- Getting pre-approved for a mortgage is recommended because it will strengthen your offer and help speed up the final mortgage approval process.
- Your pre-approval letter will tell you how much you can get approved for, your interest rate, and an estimate of your mortgage payments.
How Long Does It Take To Get A Mortgage Approval In Canada?
The mortgage approval process from start to finish can take a few days to up to a month or more, depending on the complexities of the transaction. That said, mortgage approvals generally take anywhere from 2 to 10 days.
Banks usually take longer than alternative mortgage lenders due to their strict requirements. You may have to jump through more hoops with traditional lenders, which can make the process longer. Alternative lenders have a shorter process since they tend to have more lax lending requirements for borrowers to meet.
You can speed up the process by using a mortgage broker, as they have a network of lenders that they can quickly connect and pre-approve you with based on your credit and financial profile.
Should You Get Pre-Approved For A Mortgage?
With a mortgage pre-approval, your lender will assess your finances and credit profile to give you an estimate of how much of a mortgage loan you may qualify for, along with the interest rate you’ll be charged.
It’s highly recommended that home buyers get pre-approved for a mortgage before starting the house-hunting process for several reasons:
- You’ll know how much you can afford. A mortgage pre-approval will tell you how much of a loan you can take out, which can help you filter your home search to houses that match your budget.
- You’re more attractive as a buyer. When you get pre-approved for a mortgage, the seller will see you as a serious and qualified buyer, which may give you more negotiating power. This is especially helpful in a hot seller’s market.
- Your interest rate is locked in. You’ll have the opportunity to lock in your interest rate, which is beneficial if you’re offered a competitive rate. By locking in your rate, you won’t be affected by any market changes during your home search. Rate locks can be held for anywhere from 60 to 130 days, depending on the lender.
- You can plan your budget. Houses are a huge expense, and understanding how much your monthly payments will be ahead of time can help you better budget and manage your finances.
- It’s obligation-free. Getting pre-approved is free and doesn’t bind you to any one lender. You can get multiple pre-approvals and compare offers to find the one that best meets your needs.
What Does A Mortgage Pre-Approval Tell You?
When you apply to get pre-approved for a mortgage, the lender will likely require a few documents, including personal and financial documents, to verify your identity and assess your financial situation. With that, they’ll be able to pre-approve you for a mortgage, which will provide you with:
- The maximum mortgage amount you can qualify for
- An estimation of your mortgage payments
- The loan term
- The interest rate you qualify for (you can lock in the interest rate for 60 – 130 days)
Steps To Get A Mortgage Approval In Canada
Applying for a mortgage in Canada typically follows these steps:
1. Compile All Necessary Information And Documentation
There is a lot of paperwork involved in applying for a mortgage in Canada. The more prepared you are, the smoother and quicker your experience will be. While certain mortgage lenders may require different information and documentation, all borrowers should have the following on hand when applying for a mortgage:
- Letter of employment
- Tax returns from the previous year (potentially 3 years if you’re self-employed)
- Bank statements (typically 3 months’ worth)
- Photocopy of government-issued I.D.
- Source of down payment
2. Find A Mortgage Lender
When searching for a mortgage lender, a mortgage broker can prove beneficial. They will shop around for a lender on your behalf based on your financial and credit profile. They’ll help you obtain pre-approval with multiple lenders and help you find a mortgage with an interest rate and term that works best for you. This can save you time, effort, and money.
3. Apply Online
Once you have chosen a lender, submit the required information documents to them. They will evaluate your income, debt-income ratio, assets, and credit score. Within a few days, you should receive your determined mortgage approval limit and interest rate.
4. Start House Hunting
With your pre-approval, you can start searching for houses within your budget. Remember, you don’t need to spend your entire pre-approval amount. It’s recommended to look at home prices that fall well below your pre-approved limit to avoid becoming house-poor.
5. Get Your Mortgage Approved
Once you’ve found the house you want to buy and your offer has been accepted, you’ll notify your lender to start the underwriting process. Upon confirmation, your lender will send you the official commitment, which is a document that includes your interest rate, mortgage term, and other relevant pieces of information.
6. Sign Official Documents And Close The Deal
The official closing date is when the disbursement of the mortgage occurs. This means all parties will receive the necessary funds from your mortgage lender.
You’ll also sign the mortgage documents, including employment and income verification, confirmation of down payment, basic financials, and property details. Afterwards, the mortgage broker will contact the lender to transfer funds to the lawyer. Likewise, the lawyer will distribute the money to the sellers’ representatives.
All in all, the process can take a few days, as mentioned. However, if there are any hiccups in the process, it could drag out to a month or more.
What Not To Do When Waiting For A Mortgage Approval
While you’re waiting for final loan approval, there are some things you should not do to avoid delaying the process or even getting denied a mortgage altogether:
Don’t Change Jobs
Your pre-approval is based on your employment and income. If anything in this area changes, it could throw a wrench in the mortgage approval process.
If your income dips, you may not be able to qualify for as much of a loan. Similarly, if your employment status changes, this will negatively affect your job stability as far as your lender is concerned.
Don’t Add More Debt
Whether you take out a car loan, apply for more credit cards, or apply for a personal loan, this will all add to your debt and increase your debt-to-income ratio. Adding more debt to the pile will throw off your mortgage approval since your lender is basing their decision partly on the debt you’re currently paying.
Applying for too many new credit products can also negatively impact your credit score. If your score dips, you’ll reduce your chances of getting approved for a mortgage.
Don’t Max Out Your Credit Card
It’s recommended that you keep your credit card balances to no more than 30% of your credit limit. The amount you spend relative to your credit limit is known as your credit utilization ratio, which also plays a role in your credit health. Maxing out your credit card will increase this ratio, which could impact the mortgage approval process.
What’s The Difference Between Mortgage ‘Approval’ And ‘Pre-Approval’?
Mortgage pre-approval is not a promise or guarantee of loan approval. When you get pre-approved, your lender provides an estimate of what you may be approved for based on your current financial and credit health. In other words, it’s conditional.
Only after you’ve made an offer on a home can the final mortgage approval process carry on. To get final approval, the lender will not only need to fully verify your income, debts, employment, and credit score, but they’ll also want to verify the value of the property you’re purchasing.
That’s why you’ll need to provide your lender with the purchase contract, and why the lender will order an appraisal of the home to verify its current value.
What Happens If I Am Not Approved?
If you’ve applied for a mortgage but are turned down, you have some options:
Add A Co-Signer
If you’ve been turned down because your income or credit score isn’t high enough, consider adding a co-signer to your mortgage. A co-signer is someone with strong credit and income who will take over the mortgage payments if you fail to make them yourself.
A co-signer can strengthen your mortgage application and reduce the lender’s risk. In turn, this may boost your odds of loan approval.
Apply With An Alternative Lender
If you cannot meet the loan criteria required by your lender, consider applying with an alternative lender with less strict requirements. B lenders and private lenders are more likely to approve borrowers with lower credit scores.
If you’ve been turned down because of a relatively weak application, you may have better luck with an alternative lender instead of the bank.
Increase Your Down Payment
Perhaps you can strengthen your mortgage application and reduce the lender’s risk by making a bigger down payment. Look into down payment options like the Home Buyers’ Plan (HBP) or First Home Savings Account (FSHA) to access funds for a bigger down payment. Or see if there’s any way a close family member would be willing to offer you a monetary gift.
Improve Your Credit Score
If your credit score is getting in the way of mortgage approval, it may be wise to take some time to improve your situation. Check your credit score for free using Loans Canada’s CompareHub tool to see where you currently stand, then take steps to improve your score.
Applying for a mortgage when your credit and finances are strong will increase your chances of approval, but it can also move the approval process along faster.
Bottom Line
The mortgage approval process typically takes a few days. But you could speed up the process by first getting pre-approved. That said, it could take longer for the process to complete in more complicated situations. Ensure that your financial and credit profiles are strong, and don’t make changes to your financial life after applying to avoid any unnecessary delays in the process.
Mortgage Approval FAQs
How long does a mortgage pre-approval take in Canada?
How long will a mortgage pre-approval last?
Why did my mortgage application get rejected?
Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service.
