Mortgages and Security

Most buyers need to borrow money to complete their purchase of real estate. Generally, individuals will borrow money from Banks or, where they do not qualify for conventional mortgages, they may borrow from 2nd tier lenders or private lenders.

Lenders generally require security to ensure that you repay monies borrowed. That security generally takes the form of a mortgage, which is a lien against the title to the real estate.

The lien protects the lender’s interest, by ensuring that the property cannot be sold and in some cases – further mortgaged – without the lender’s consent and repayment of the debt.

A mortgage which ranks as first in priority is the most preferred form of security.

Mortgage Financing Sources and Typical Process

A buyer who requires financing will generally look to a bank or other financial institution for their financing requirements. In such instances, you may apply directly to the institution or through a mortgage broker.

A borrower must complete an application, which requires the disclosure of your assets and liabilities. Once the application is approved, a commitment letter from the lender will detail the requirements the lender has imposed, prior to providing funding.

A mortgage commitment is a contract for the borrowing of money. A mortgage commitment is not the same as being “pre-approved” by a lender. Obtaining pre-approval from a lender does not bind that lender to lending money to a buyer.

Pre-Approval merely confirms how much the lender may be willing to lend to the buyer, subject to the terms of a commitment letter being satisfied. You should ensure that you understand your obligations under a mortgage commitment before you bind yourself to its terms.

Financing requirements have become more stringent in recent years. Ensuring that you have sufficient financing to complete your purchase should be completed before you bind yourself to an agreement of purchase and sale.

You may want to read NLPC’s ‘Six Factors to Consider Before Contacting a Private Lender’ white paper, which provides additional details about private lending and the need to have a lawyer involved at all steps of a private lending arrangement, and especially prior to engaging with private lending.