Finalizing your financing for a condo

A mortgage pre-approval isn’t the final stage to getting a loan for your condo purchase.

Once an offer is accepted, lenders will do a deeper dive into your finances before determining whether to grant your application for a mortgage.

It’s possible to fail at this stage — your income may have changed, you may have run up credit card bills or gotten a new loan — and a lender will want to know this before agreeing to give you hundreds of thousands of dollars.

Here's how to stay on course.

Scrutiny of your financial records intensifies

Inform your lender as soon as you learn that your offer is accepted. There’s a lot of work to do before a lender issues a legally binding loan to you.

This is the underwriting process, which often can be grueling. The lender may ask you for new documentation or for paperwork you've already provided. It's best to be patient and respond quickly. Any hesitancy on your part can delay the process. They will check and double-check your job, length of employment, earnings and assets. They also will verify your credit — how much you owe, your history of repayment and whether you’ve had any bankruptcies.

The review can take from a few days to a few weeks.

You’ll need to update your financial records — latest pay stubs and banking statements — and add any assets or liabilities you have since your pre-approval. Updated tax forms also must be submitted, if you’ve filed since the pre-approval.

Your lender will submit a loan estimate form to you several days after starting final approval. The form will estimate your monthly payments, closing costs and other fees. It will tell you whether there is any penalty if you pay off your loan balance before the term ends.

The lender will issue a final loan estimate, called a "closing disclosure form," when you’re about to close on the condo. The form sets out all the final costs associated with buying the unit, such as taxes and insurance premiums. You must sign this.

Pro tip: Request a pre-written employment verification letter from human resources on company letterhead confirming your position, salary and tenure.

Lock in interest rate

It takes 30- to 60 days from the acceptance of your offer to the actual closing date. During this time, interest rates can rise or fall, affecting the size of your monthly payments. You may want to ask your lender whether you can lock in your mortgage rate. Some lenders will allow you to lock into a rate much earlier in the home purchase timeline, like when you are pre-approved.

If rates look as if they are falling, you can get a float-down option. Lenders charge a fraction of a percentage of your loan amount for this privilege. Research the direction of mortgage rates in the past three to six months to get an idea where they are headed.

Some lenders offer rate locks for free, while others charge a quarter to a half point of the loan amount. The costs can be paid upfront or rolled into the loan. Contact your lender for more information. Lenders can void a rate lock if your financial circumstances change, such as taking on debt that changes your debt-to-income ratio.

A rate lock affects the points and lender credits that are part of your loan. This is because points and credits are based on the rate.

Rate locks expire after a set period, typically after 15- to 60 days. You can get a new rate lock if you haven't closed. An extension usually costs a certain percentage of the loan amount, depending on your lender.

Complete the title work

Once underwriting is underway, the lender will order a title search for the condo. This involves someone tracing the ownership of the unit back to its original owner and checking for any claims. The purpose is to ensure that the seller actually owns the home. Your lender or your agent can recommend a title search company for the task.

Claims against the unit can include property tax liens, unpaid homeowners association fees, judgments against the owner and loans against the property. These follow the seller or prior owner and must be paid before you can take legal ownership.

The lender will take out a title insurance policy that protects it from future undiscovered claims against the property. You pay for this as part of the closing costs. It does not protect you. You'll need to take out a separate policy for that.

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