Before even considering purchasing real estate, there is a key step that everyone should take. This is getting pre-approved for a mortgage. Now there is a decision to make, do you go directly to your bank or work with a mortgage broker? Let’s break down that answer.
What is a mortgage broker?
A mortgage broker is a professional licensed to work with mortgages and other financial products. Note that a Mortgage Agent and a Mortgage Broker are similar. However, the various types of licenses come with varying qualifications, governed by the FSRAO (Financial Services Regulatory Authority of Ontario.) These varying degrees of qualifications do enable or limit a licensed individual to work with different types of financial products and services.
Mortgage Brokers and Agents have an extensive network of lenders. This lets them shop for rates and terms that best suit your specific needs and circumstances. They’re the middleman between you and the lender. Generally, the lender pays the mortgage broker, making their service free to you!
Going directly to a bank
While Mortgage Brokers and Agents access many lenders and financial products, a bank representative is limited to the products provided by that particular financial institution and their affiliates.
While a mortgage broker seems obvious, working with a bank where you already have other investments and financial products may prove advantageous. If you are looking for a trusted broker, contact a REALTOR® or family and friends for referrals. Research these professionals, read reviews, look through their websites and even interview them. As with all professions, a designation provides no guarantee of the quality of service or ethics; in fact, we’ve discussed bad apples in the mortgage industry on our real estate podcast, KT Confidential.
You have chosen your broker; what happens next?
1. Initial conversation: Discuss your financial situation and goals with your broker. Then create a plan so that everyone is on the same page.
2. Pre-Approval: Your broker will require documentation regarding your finances. This can be specific to the situation; however, the most common documents include Letters of Employment, Pay Stubs & Tax Documents. Once the broker has these, they can work on getting you pre-approved. And then, once you have your pre-approval, you will know your budget and begin searching for a property with your REALTOR®.
3. Approval: You have purchased a home; congratulations! Now you must return to your broker and provide purchase details, such as the Agreement of Purchase and Sale, any attached Schedules, and sometimes a copy of the MLS listing (the REALTOR®-version, to be specific.) Your mortgage broker will now submit your mortgage application to the selected lender, and you should have an update in a few days! Once you get the green light and the mortgage is approved, you will sign the required paperwork, and your broker will send everything to your lawyer.
4. Pre-Closing: The lender and the lawyer will now work together to process your purchase. During this time, no big purchases must be made (for example, do not go and finance a new car). A lender could revoke your mortgage if you do so. Next, you will schedule an appointment to review and sign the paperwork with your lawyer to complete the sale.
5. Closing: The much-anticipated date has arrived! The lender will now transfer funds to your lawyer, who will then distribute the funds where applicable. They will also register your name on the property’s title and hand over the keys! Happy moving!
While purchasing a home is exciting, you want to ensure you are working with knowledgeable professionals. This will most likely be one of the biggest purchases of your life! Do your due diligence, whether going directly to a lender or using a mortgage broker.
If you’re ready to take the steps toward purchasing your first home or moving to a new property, give me a call.