Buying a house in Canada can be a complex process. From requiring a down payment that can be 5% to 20% of the house cost to applying for a mortgage, the process of buying a house can be long and difficult.
Once your offer on a house has been accepted, it’s time to apply for a mortgage. However, how long does a mortgage approval take and what do you need to get approved?”
How Long Will It Take To Get Approved For A Mortgage In Canada?
Once you find a home that you’d like to buy, you’ll need to formally apply for a mortgage. This can take a few hours to several days (usually up to a week) depending on the lender and if you provided all the required documents.
In general, banks take longer than alternative mortgage lenders due to their strict requirements. However, you could speed up the process by using a mortgage broker, they’re generally well aware of all the nuances of applying for a mortgage as an employed or self-employed person. They can help navigate you through the process and point you in the direction of lenders who are more likely to accept you based on your credit and financial profile.
Should You Get Pre-approved For A Morgage?
A mortgage pre-approval provides you with the maximum amount you can borrow with the bank you applied with. Getting pre-approved for a mortgage with multiple lenders is a great way to compare options without formally applying for a mortgage.
When you apply for a mortgage pre-approval, the lender will likely require a few documents such as your bank statements, pay stubs and other financial documents to 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
- Your mortgage payments (estimated amount)
- The interest rate you qualify for (you can lock in the interest rate for 60 – 130 days)
Getting pre-approved for a mortgage is highly recommended, as it provides borrowers with a number of advantages including:
- You’ll know how much you can afford. A mortgage pre-approval can help you filter your home search to houses that match your buying capacity.
- You’re more attractive as a buyer. When you get pre-approved for a mortgage, the seller will see you as a serious buyer, which may give you more negotiating power.
- Your interest rate is locked in. By locking in your interest rate, you won’t be affected by any market changes during your home search.
- 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 free and 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.
Mortgage Approval Steps
Applying for a mortgage in Canada may seem like a daunting task but the good news is that the whole process can be broken down into six easy-to-follow steps.
1. Compile All Necessary Information and Documentation
There is a lot of paperwork involved in applying for a mortgage in Canada. Therefore, the more prepared you are, the smoother and even quicker your experience will be. While certain mortgage lenders may require different information and documentation, all borrowers should have the following on hand when looking for a mortgage lender:
- Letter of employment
- Tax returns from the previous year (potentially 3 years if you’re self-employed)
- Bank statements (typically 3 month’s worth)
- Photocopy of government-issued I.D.
2. Shop Around For A Mortgage Lender
As we discussed above, getting pre-approved for a mortgage is an important step all potential borrowers should take. The mortgage lender you ultimately choose is important. The average homeowner will be with their lender for the duration of their mortgage, typically 25 years, or at the very least for the first term, which is most commonly five years. Obtaining more than one pre-approval (or working with a mortgage broker) will help you find the mortgage, interest rate, loan term, and flexibility that works best for you. Keep in mind that often the choice is obvious and it does not take you long to determine who you want. For others, they may take a few days to decide.
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. In no more than three days, you should receive your determined mortgage approval limit.
At this point of the process, you now have pre-approval from the lender. Pre-approvals allow you to understand your mortgage approval limit and affordability when the time comes. Having a pre-approval also helps you avoid delays when you put offers on houses.
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, you can choose a house that’s under budget. Making offers on any houses that catch your interest, will take the most time as looking for the perfect house is usually not an overnight job. If you are fortunate, you may find a house you like and win the bidding within a week. Otherwise, it may take several weeks.
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 what is called 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 Offical Documents And Close The Deal
On the official closing date (typically the day you take possession of the house depending on the deal), the disbursement of the mortgage occurs. This means that all parties involved will receive the necessary funds from your mortgage lender. On this day you’ll bring money for the closing costs, which is about 3-4% of the purchase price and money for the down payment will exchange hands. You will also sign the mortgage documents, which include 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.
What To Do When Waiting For A Mortage Approval
Waiting to hear about a mortgage approval can be a stressful time, especially for first-time buyers who have limited experience. To help ease the stress and make sure you’re prepared for any potential issues, consider the following tips:
Keep In Touch With Your Real Estate Agent – If any issues arise or you have any last-minute questions or concerns, you can trust your real estate agent to handle them. They are familiar with the entire process, so do not worry if not everything went as smoothly as you thought it would.
Talk To A Financial Advisor – If you have any questions regarding your mortgage or how it going to affect your financial future, consider speaking with a financial advisor. Mortgages are expensive and can put a real strain on your finances if you take on more than you can comfortably afford.
Get A Lawyer – If you’re purchasing an expensive or valuable home or are purchasing the house as an investment, it’s always good to have a real estate lawyer on hand to answer any questions or help you deal with any issues.
Mortgage Approval FAQs
How long does a mortgage pre-approval take in Canada?
How long for a mortgage pre-approval last?
Why did my mortgage application get rejected?
The pre-approval only takes two or three days, but the time it takes before you get to that step depends on you. Getting your mortgage approved also will not take that much time, but getting to that point in the process will. Considering all steps, the average approval could take about a month or so.