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How does the mortgage approval process work? (and how to get approved fast!) - YouTube
Channel: Homebuyer's School
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In this video you'll learn the step by step process
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you need to take to get approved for a mortgage
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that's coming right up
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Welcome to homebuyer school brought to
you by Brookfield Residential
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Hi everyone I'm Karl. Welcome to another
homebuyer school video a channel where
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you get the latest strategies tactics
and tips from home buying experts and
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remember this is your first time on this
channel and you want to get the latest
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strategies from the experts, hit the
subscription button below hit the little
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notification bell so you don't miss
anything. So today i'm joined by
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Mujtaba Syed, Mortgage Specialist with
the Bank of Montreal and today we're gonna
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go through the actual mortgage approval
process. So Mo let's go step by step how
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would someone actually get approved for
a mortgage? Mm-hmm so the process should
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be very simple it's very straightforward
you go you book a time with your banker
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your lender your mortgage specialist go
in they will come up with a list of
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documents that you provide depending on
your specific scenario documents can
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vary that the bank will look for you've
got a document you go in for your
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meeting and then you actually sit down
you have the conversation with your
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lender or your specialist at that time
and say "listen this is my first time
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buying a home", maybe do some research
right and watch our videos to see what
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kind of questions are good to ask your
lender and specialist so they're
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prepared. I feel like the best clients
that I come across are the ones are
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mostly informed themselves. So you go
into the meeting you bring your
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paperwork with you and then the lender
will sit down with you and start the
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process which is what we call our
pre-approval application so they will
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sit down with you go through the
pre-approval don't ask a question
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regarding your income, your assets, your
liabilities, they'll go over your credit with
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you and they'll come out with roughly
and amount that you guys can afford
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which is within your budget. Now an
approval amount and a budget amount is
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totally different things you could
approve for a lot higher but it might
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not fit your personal budget right, so
some people have our own personal budget
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in mind that you don't want to go over a
certain monthly payment -- I would say
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kind of decide that before you go into
your initial meeting because most
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lenders what they do is they'll qualify you
for the maximum. Especially in the
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initial stage because they have no idea
what's going to be on the market when
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you go out. Pre-approval is usually are
good for about 90 days but the rate hold
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that we can do -- so let's say there's a
really good wait hold -- we can hold out
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for four months, but even though let's
say your pre-approval has expired in 90
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days, you can come back and see your
lender again and we can extend that
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again for another 90 days as long as the
situation hasn't changed. So let's say
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you find that perfect home lets say you
find a home that's
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$400,000, you write an offer on it saying
you're willing to pay $390,000
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the offer gets accepted
by the seller at $390,000
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they'll give you a certain time
period that will be called Conditional
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Financing. It will give you five to ten
business days depending on the
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seller to get your financing in order or
get your financing approved. Once that
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day starts, the clock actually starts
ticking from that time, and you have that
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certain time period now to go ahead and
get your approval that's the reason why
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I really stress to my clients getting a
pre-approval prior to that because now
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everything's already in place. Now we
only have to do is to get the contract
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provide to the lender. Now can actually
approve you and the property at the same
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time we get that sent off you should
gain approval within 24 to 48 hours and
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then from there you can go ahead do the
inspection that you need to do come in
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to the bank,
sign paperwork, meet with your lawyers,
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and then you just move in. So it's
actually not that difficult of a process
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two or three steps there, but it should
be a very seamless enjoyable process if
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you've done your homework right in the
beginning. So if you want to know more
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about the actual pre-approval process we
got a video up here and I'll link it in
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the description below as well. So Mo, once
you've selected a home,
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you've actually gotten your pre-approval,
how long does the true mortgage approval take?
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- from the time the clients submit
documents or the lender submits the
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documents to the underwriter, which is an
individual in the backend of the file
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who assesses it,
it should only take 24 to about 48
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hours maximum. Shouldn't take longer than
that -- now there could be some off
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situations where there could be system
delays or there's a backup or a log
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that's kind of moving very slowly but
your lender would be able to tell you
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that at that time because they
technically have an idea -- but usually if
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everything is going smoothly should be
24 to 40 hours no longer than that so
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what are the requirements somebody has
to have in terms of getting the approval?
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So what most lenders look at is called
five Cs of credit so the five Cs of
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credit are: Character, Capacity, Credit,
Capital, and Collateral.
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Capacity means, can you afford the home that
you're purchasing based on the stress test,
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based on the amount. So for that we
will ask you for certain types of
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documents that you might need depending
on your scenario. If you are an employee
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we can ask you a letter of employment,
pay stub, direct deposits going into your
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account, and we can ask you for an annual
document
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as well T4, your tax returns... If
you're self-employed it could be a very
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different conversation they can be as
simple as to your tax returns, or we go
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for like a deeper dive if we can't find
the information we're needing. But the
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lender will tell you at that time what
you need to do. The other thing we look
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at is credit, that's another C of
the lending process is credit, so we
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want to make sure that you have
good credit to buy a home within Canada
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the minimum is six hundred so if you
have anything lower than six hundred
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unfortunately you will need to get a
cosigner; someone that has a higher
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threshold of credit to help you.
There's also certain guidelines for
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example let's say higher ratios for
example if you want to go for your
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maximum borrowing amount you want your
credit to be at least 680 or higher
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and that gives you the maximum room
available to buy if you're last in 680
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then your purchasing power is going to
be a little bit less based on the
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threshold it could go down by a couple
hundred dollars a month it will just
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depend your lender will discuss that
with you at the time of the appointment
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another C of purchasing is called
collateral which is now the property in
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place that we're actually using as
collateral we want to know that it's
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meets our guidelines right -- let's say
there's no issues with the home it's not
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too old, it's not falling apart. Lets say if it's a condo, there's no special
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assessments going on. All that stuff the
bank will look at because not only are
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they using that property as collateral
but they're also trying to save you as well
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As a homeowner you don't want to
get stuck with something that you
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unfortunately did not know and now you start
paying that mortgage for 25 years and
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let's say the value's not there or
there's a major issue with the home
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right so that's first three C's of
credit we look at character as well.
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So character what we explain to our
clients is: you promise to pay something
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which is let your mortgage pay on time
we will assess that by looking at your
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credit or your income we look at all
that stuff to see: can you afford to pay
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or will you pay what you promised to do?
Capital just means we look at technically
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what your net worth is. So let's say
your assets minus your liabilities is
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your net worth. It could be negative, it
can be positive, it just really depends
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on a lot of different situations so if the underwriter or the bank
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looks at certain life stages you're
in -- you're just starting out for
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the first time, you might have some
student loans so your capital might be
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negative your net worth
might be negative, it's not a big deal it
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fits perfectly with your life stage. But
now if the scenario is reversed and
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let's say you're 60 65 and you have
negative net worth, now the bank might
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think or look harder and say 'what
happened here, you don't really have
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shown any history of borrowing or
having any history of saving' so they
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might question a little bit more.
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So when
you talk about credit if you do a
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mortgage approval does it impact credit
score?
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It's a case by case scenario so
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it's very hard to say. So if for
example let's say you're coming in and
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you decided you picked your bank you've
done your research and say 'this is my
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bank I want to deal with them' and you
apply for a pre-approval, it's not going hurt.
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But what happens in most scenarios is
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clients unfortunately go and they shop
at multiple places, and then what happens
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it does reduce your score because the
credit bureau is just a tool that
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banks use. So what it says to them
is that this person has applied at five
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or six different places, they haven't got
approved for the first four, now going to
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their fifth, now they're a credit seeker
and they haven't got approved so that is
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what the credit bureau thinks and it
reduces your score by that much
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but actuality what you might be doing is
just rate shopping.
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But if you are
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rate shopping, definitely make sure that
the lender is not pulling your bureau.
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That's something that you don't need to
do at that time. You can have a rate hold
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or you can even discuss rates without
pulling your bureaus so it doesn't
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affect negatively on your credit bureau.
I would definitely not recommend
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shopping with five or six different
lenders just for rates. That would
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definitely impact your score. It also
depends on specific lenders how they
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report to the credit bureau if it will
show up as a soft hit which is an
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inquiry or a hard hit which is an actual
real live application. Ask that to your
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lender as well to see how they report to
the credit bureau.
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And one more thing in
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terms of talking to your lender, what are
some of the questions that you probably
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want to ask when you're actually going
out and finding a lender?
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The biggest question I feel a lot of clients don't
ask is going into the nitty-gritty of the
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terms and conditions of a mortgage. Not
every mortgage is built the same there's
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certain aspects that let's say are built
into the mortgage where you have some
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certain stipulations, but you also have
certain benefits built into a mortgage.
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Say you want to prepay us for an
amount and let's say this mortgage that
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you're getting from a specific lender
doesn't let you prepay to the maximum
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amount that you are willing to do, you
would want to discuss that with them
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beforehand and say 'I want to prepay
20%
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of my original mortgage balance every
year. Can I do that?' and they might come
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back to you and say '10% that's the maximum
you can do. Anything over that now is
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you're going to be penalized.'
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So now it
doesn't fit your budgeting in your
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criteria I would actually go and speak
to a lender that actually fits.
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Another really good one is something called a
mortgage cash account which i think is
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amazing. So what happens is any
time you put large sums of downpayment
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which is above your normal mortgage
payment, let's say your lump sum payments
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it actually reduces your mortgage
by that amount but also sits on
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something called a mortgage cash account.
So let's say in the future you have an
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emergency, you have a need for that fund,
you can actually go back into the bank
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and actually take that money out. You
don't have to re-qualify for that
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which is a great incentive to add, which is
built into the mortgage. A lot of people
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would not realize that if they didn't
actually go into the nitty and gritty terms.
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So definitely find out.
There's always more than just a rate
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that's attached to the mortgage. Terms
and conditions are really really a big
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part of it because at the end of the day
that's gonna impact you more than let's
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say a point one difference between
lender A or lender B
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so point one difference to me is not make or break,
but the terms and conditions can be make
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and break for clients.
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So the question of
the day I have for you is:
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How is your experience with a mortgage approval
process and do you have any tips?
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Let us know in the comment section below, and if
you want to know more about the mortgage
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approval process, watch this video
playlist here as well as our other
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videos on home financing which you can
see here.
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Don't forget to subscribe to
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keep hearing from the experts, and we'll
see you in our next video
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