Terminology and Documentation
Documents in a mortgage file
Candidates must recognize the purpose of key documents: the mortgage application, credit report, income verification, down payment verification, property appraisal, commitment letter, and the mortgage/charge instrument. The commitment letter sets out terms, conditions, and the lender's obligations; conditions precedent must be satisfied before funding. Disclosure documents explain fees, the cost of borrowing, and the relationship between the broker and the borrower.
Terminology to master
- Commitment/approval: lender's conditional offer.
- Conditions precedent: requirements to be met before advance.
- Charge/mortgage registration: perfecting the lender's security.
- Discharge: removing the charge when the mortgage is paid.
- Assignment: transferring the mortgage between lenders.
- Payout statement: amount required to discharge.
Traps
A frequent trap is treating a pre-approval as a firm commitment - it is not. Another is confusing a condition precedent with a condition subsequent. Also, a broker must ensure all material information is disclosed and documents are complete and accurate; incomplete or misleading documents can void a deal or trigger regulatory issues.
Worked example
Rule of thumb: "Pre-approval is a maybe; commitment is a yes with conditions; funding is the money." If a question asks when the lender is bound, the answer is generally after conditions are satisfied and the commitment is accepted - not at pre-approval.