The Mortgage Process
Each province, including Alberta, has specific real estate laws, tax rules, and lending regulations. Understanding the mortgage process protects you from hidden fees, bad deals, or predatory lending practices.
Check that you’re ready for home ownership. Utilize the listed links throughout my website to estimate your budget, check your credit score, review future monthly payments, and browse current rates. Understand that lending has many hidden costs. Closing costs are estimated to be 1.5%-4% of the purchase price of your property. Moving costs and adjustment costs may be present as well. Make sure you have savings for a minimum down payment of 5% for homes under $500,000. Keep in mind that your minimum down payment changes as the housing cost increases.
Getting pre-approved. This is when it is time to reach out to a trusted mortgage broker. After signing various disclosure forms, your broker will professionally assess your income, debts, credit, and savings. You will be asked a generous amount of questions, including your planned budget, your accessible down payment, and any current assets. Any stated information will need a source of proof. Recognize that questions may be more extensive based on the applicant’s specific circumstances, including divorce, self-employed, new to the country, previously bankrupt, etc.
Your broker will calculate your debt ratios using two key metrics: GDSR (Gross Debt Service Ratio) and TDSR (Total Debt Service Ratio). A credit report will also be pulled to assess your creditworthiness from a lender’s perspective. Generally, a minimum credit score of 600–680 is recommended. However, if you have limited or poor credit history, alternative lending solutions may be available, so don’t be discouraged.
It’s not uncommon for brokers to revisit your file or request further documentation during this process. If your application meets the lender’s requirements, you will be issued a pre-approval letter. This letter outlines the maximum mortgage amount you qualify for and the corresponding down payment, and may include a rate hold for 90 to 120 days (depending on the lender), protecting you from potential interest rate increases while shopping.
Remember, a pre-approval is not a mortgage guarantee; it serves as a guide to help you confidently shop without exceeding your budget.
The final offer. Congratulations, you’ve been pre-approved and have found your dream home within your budget. Ideally, a majority of the required information should have been obtained during the pre-approval process. Your broker will review your application and make appropriate adjustments, such as more recent pay stubs or bank statements. Your application is then sent back to the lender for final approval, where they will also consider the property’s condition and assess if it is suitable to their conditions. The lender will additionally send your application to a default insurer, if that is within your scope. Mortgage default insurance is mandatory under federal law if your down payment is less than 20% of your home’s purchase price. Once you get the lender and insurer’s approval, you are to sign the final application.
Satisfy conditions. Do not waive your financing condition until all lender conditions have been fulfilled. The lender will issue a commitment letter, an official document confirming their intent to finance your mortgage, dependent on meeting all stated conditions. Once all requirements are satisfied and conditions are formally waived, your financing becomes firm.
Lawyer involvement. In Alberta, a real estate lawyer must handle all final paperwork. It is your responsibility to hire a lawyer to; review the purchase contract, transfer the land title, ensure funds are received and disbursed correctly, and handle property tax adjustments and closing logistics. When the lawyer is ready for you to sign the contract, you will be asked to provide a bank draft to show proof of your down payment, two forms of identification, and a void cheque for mortgage payment setup.
Closing day! (possession day) Your lawyer will manage the transfer of monies from your bank account and your lender, to the Sellers’ legal representative. Upon receipt of the paid funds, your lawyer will register the mortgage on the property with Alberta Land Titles under your name. At this stage, you are officially a homeowner, and the keys to your new home are handed over!
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Here is a refined list of the possible documents and information you will need to provide:
Your income (pay stubs, letter of employment, T4s or NOAs)
Your debts/liabilities (credit cards, car loans, student loans, child support)
Your assets (savings, RRSPs, investments, vehicles, other properties)
Your credit history (After signing a disclosure document your broker will pull a credit report)
Basic info about what you're planning to buy and available down payment
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What is my Effective Annual Rate?
What are my pre-payment options?
What happens if I default on my mortgage?
Is my mortgage portable?
Are property taxes included in my monthly payments?
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Even aside from the down payment, expect to pay about 1.5%–4% of the home's purchase price in closing and set-up costs.
Default Insurance (2.8-4% of the mortgage amount)
Appraisal Fees ($300-$500) *Subjective to the lender
Home Inspection Fees ($400-$700) *recommended but not mandatory
Legal Fees and Disbursements (legal fees $800-$1,500 disbursements $300-$600)
Title Insurance ($150-$400 one-time fee)
Land Title Registration Fee+Land Transfer Fee ($50 base fee + $1 for every $1,000 of property value/mortgage amount.)
Property Tax Adjustments (If the seller prepaid property taxes, you may need to reimburse them for your portion. Your lawyer will calculate this at closing.)
Homeowners Insurance ($300-$1500 annually)
Utility Set-Up Fee (subjective to the property)
Moving Costs ($500-$2000)
Any inspection fees (well and septic inspection, condo document review, brokerage fees is applicable)
*All provided costs are rough estimates*
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The first renewal is arguably the most important renewal. You’ve now spent your first term under your current conditions and rates. Now it’s time to analyse how sustainable you were throughout the term and what you may want to adjust. Your lender will commonly contact you 4-6 months before your term expires. A lender will send a ‘renewal letter’ offering a new term at a specified interest rate reflected based on the prime rate. You may accept this offer without any negotiation, and although it is the easiest route, it’s often not the cheapest.
Sometimes, a missed opportunity during renewal is to do a mortgage switch or transfer. A switch allows a borrower to transfer their mortgage to another lender who may offer more attractive rates or prepayment options. Switches do come at a cost, there is often legal fees, credit checks, requalification and appraisals needed for the new lender. But by switching at renewal you avoid prepayment penalties.
If you want to borrow more money (pull out equity for renovations, pay off debts, invest in other assets.), you may be eligible to refinance instead of just renewing. Although this requires a full re-qualifying check. It can often be worth the extra paperwork. To avoid any prepayment penalties wait to refinance at the time of renewal.
Renewal time is the best time to;
Change Your Amortization:
Shorten or lengthen the life of your mortgage depending on your goals.Switch Rate Type:
Lock into a fixed rate from a variable or adjustable rate.Adjust Your Payment Frequency:
Monthly, semi-monthly, bi-weekly, accelerated bi-weekly, weekly, accelerated bi-weekly(Accelerated payments have an approximate annual pay down principal equivalent to making 13 monthly payments)
Take Advantage of Prepayment Privileges:
Pay down a specified lump sum directly against your principal at the time of term renewal without penalties.
