Step 5 - Processing

The processing of your loan involves the collection of all the outstanding documents that are needed to satisfy the conditions that were set forth by the underwriter in your commitment letter. These conditions could include verifying your income and assets, reviewing the Purchase and Sale Agreement and appraisal, or obtaining information or documentation to substantiate past credit issues, child support/alimony payments, receipt of gift funds, employment information, etc.


The Commitment Letter

The commitment letter is the formal mortgage loan approval, issued by the lender, that sets forth the terms and conditions under which the loan is made. The body of the letter will specify your mortgage loan amount, loan, interest rate, and any conditions that must be met prior to your closing.

The mortgage loan amount is the amount of money that the lender is willing to finance for your home purchase, and is equal to the purchase price of your property less your total down-payment.

The loan program is the type of mortgage program that you were approved under. Some examples would be a 5 Year Fixed Rate, a 5 Year Variable Rate. The commitment letter is specific to the loan program. If you decide that you would like to change the loan program, your mortgage loan will have to be re-underwritten and a new commitment letter will be issued.

The interest rate is stated in the mortgage commitment letter if you have a rate guarantee, the commitment letter will read the guaranteed rate.


Conditions

A condition is an item or a document, specified in the commitment letter, that an underwriter requires from the buyer prior to the closing of the loan. The three types of conditions are generally related to income/employment, assets, or credit:

Income/employment conditions may include an updated pay stub reflecting a salary increase, a recent T4, or a signed offer letter from a new employer.

Asset conditions may include confirmation from the sale of a previous home, a source of a large deposit into a bank account or sufficient liquid funds prior to closing. The sufficient liquid fund's statement refers to the paper trail of the liquidation of mutual funds or stock accounts into a chequing account.

Credit conditions may require a letter of explanation regarding derogatory credit or a copy of a payment receipt to verify a payment that may not be showing up on the credit report.
Appraisal

The appraisal is a professional opinion by a third party who will determine the market value of the property. The appraiser will search out a minimum of three other like properties (same size, style, or square footage) and compare them to the subject property.

They use a process of addition and subtraction for different physical attributes to obtain a bottom line adjusted price. When determining a mortgage loan amount, the lender will base it on the lower of either the appraised value or the sale price.


Purchase and Sales Agreement

The Purchase and Sale Agreement is a binding contract between the buyer and the seller that sets forth the terms and conditions under which a property is sold. The contract outlines specific dates for performance, such as the mortgage application date, the mortgage contingency date, and the closing date. It also outlines any items that may be included in the sale, as well as any repairs to the property that need to be completed prior to closing.


Buyer Obligations and Seller Obligations for the P&SA

Buyer's Obligations

The buyer must meet specific dates for performance, set forth in the Purchase and Sale Agreement:

The dates that are important to the buyer include the mortgage application date, the mortgage contingency date (if applicable), and the closing date
The mortgage application date is the day by which the buyer will have to formally apply for mortgage financing with a lending institution

The mortgage contingency (mortgage financing) date is the last day that the buyer has to provide the seller with confirmation that a mortgage approval has been obtained or communicate denial from their lender. If the buyer is unable to meet this date, the buyer can ask for an extension of performance, but the buyer should understand that the seller is under no obligation to agree to an extension

The closing date is when all of the mortgage documents are signed and the title is officially transferred from the seller to the buyer by recording the deed
Seller's Obligations

The seller's obligations usually relate to the condition that the property must be in at the time of the closing. The agreement will usually outline what items are to be included in the sale depending upon the terms that have been negotiated into the agreement. These items may or may not include such things as appliances, window treatments, swing sets, etc.

It may also outline what repairs, if any, the seller has agreed to make to the property. It may, for example, include the fixing of appliances, replacing rotten wood on a deck, or any item that was negotiated into the agreement. The buyer should keep in mind, however, that the seller is under no legal obligation to make any repairs to the property unless it has been negotiated as part of the agreement.

In order to close the mortgage, all buyer and seller obligations must be met.

Go to Step 6 - Closing