Mortgage approval: The required document

In accordance with clause 6.2 of all promise to purchase forms, the buyer must provide the seller with a copy of the undertaking by a hypothecary lender to grant the amount of the loan applied for. This undertaking must be real and without conditions. But exactly what document must the buyer provide to the seller to satisfy clause 6.2?

The document confirming the lender’s undertaking must contain the following information as a minimum:

• The name and address of the lender;
• The name(s) of the borrower(s);
• The address of the immovable concerned by the application;
• The amount of the loan or the fact that the loan is approved for an amount equal to or higher than the amount indicated in the promise to purchase;
• The name of the loan officer and the financial institution’s contact information (no signature required).

Depending on whether or not the buyer uses the services of a mortgage broker to look for financing, the document to be given to the seller can take one of the following forms:

1. A “Mortgage Commitment” generated via the Finastra (Expert Filogix) application

When the buyer uses the services of a mortgage broker to look for financing, the lender’s response will generally be obtained via the Finastra application. A basic tool used by mortgage brokers, this application is used, among other things, to submit loan applications and get a quick response from lenders.

The response therefore comes directly from the lender and the system generates a document in tabular form, comprised of at least two pages, entitled “Mortgage Commitment”.

In order to satisfy clause 6.2 of the promise to purchase, the buyer can prove that he has obtained a lender’s commitment by providing the seller with a copy of this document. If the document indicates that it contains two pages, both pages must be provided. Page 1 of the document contains all the relevant information that should be part of a mortgage approval, and on page 2 the lender will have specified whether or not there are conditions attached to this approval. Only an approval without conditions enables the buyer to satisfy clause 6.2 of the promise to purchase.

When all the pages of the document “Mortgage Commitment” have been sent to the seller by the buyer and the file is considered complete by the lender, there is no need for the real estate broker to require an additional approval letter from the institution, except under special circumstances.

Example of a mortgage commitment without conditions produced by «Finastra»

2. Approval letter issued by the financial institution or a virtual lender

When the buyer deals directly with a financial institution or one of its representatives, there may be several emails and letters exchanged between the institution and the buyer during the process leading up to the loan approval. Of all this correspondence, only the letter confirming that the loan is being granted without conditions will satisfy clause 6.2 of the promise to purchase, provided it is given to the seller within the required period.

There is also another type of lender, referred to as a virtual lender. Virtual lenders are independent mortgage financing companies in Canada. They do not have a traditional network of branches.

Proof of commitment without conditions must therefore take the form of a letter of approval issued by the financial institution or the virtual lender. This letter must contain the information listed above as a minimum.

Samples of Mortgage Approval Letters - Without Conditions

3. Letter of approval from a private lender

Clause 6.1 of the promise to purchase deals with a "loan secured by immovable hypothec" and clause 6.2 indicates "copy of a mortgage lender's undertaking." The section is therefore adequate for all lenders, including private lenders. However, in the case of private lenders, one must be vigilant to ensure that the appropriate rate appears in clause 6.1 and that the undertaking is fully compliant. The OACIQ recommends that the mortgage undertaking be accompanied by a letter from the private lender's financial institution attesting that the lender has the necessary funds for this loan.

If necessary, consult your agency executive officer or a legal expert.

Summary

Since the lender’s commitment must be unconditional, the document provided cannot mention that the approval is subject to conditions relating to the buyer’s particular situation, such as:

• proof of employment;
• additional documents to be provided;
• repayment of a car loan;
• a condition of selling the buyer's property when the mechanism of clause R2.1 was not provided for prior to the promise to purchase;
• conditions from the lending financial institution, such as a prior appraisal or inspection of the property that may have an impact on the loan.

The document “Mortgage Undertaking” or the lender’s approval letter may contain statements pertaining to the usual conditions of a mortgage approval, such as the absence of change in the buyer’s financial position or in the condition of the immovable.

In addition, it is important to remember that a mortgage or real estate broker cannot act in lieu of a financial institution to confirm a lender’s undertaking, for instance by confirming in a letter that this lender has accepted the mortgage application.

Only when the undertaking by the hypothecary lender is given to the seller can the buyer satisfy clause 6.2 of the promise to purchase forms. The use of the document “Mortgage Commitment” generated by the Finastra application or an approval letter issued by the financial institution or another type of lender will satisfy this requirement.