The Mortgage Loan Process
It’s important to understand the mortgage loan process before you get started. The mortgage loan process is a series of steps that documents a consumer’s information with the goal of obtaining a mortgage loan. The familiarity of the mortgage loan process is a key to a smooth and pleasant experience while having the knowledge to properly plan for home purchase. This will give you a good idea of the mortgage loan process and the time frame involved.
The knowledge will help you feel more comfortable as you go through the mortgage loan process and will also help you anticipate any issues along the way if they should arise. The mortgage application process usually takes between four to six weeks from application to closing. During this time the mortgage lender will require a lot of information from you and you may have to meet or speak with them numerous times before the process is complete. Your loan Representative should walk you through the process and provide you with a list of items that will be needed, so you will know what to expect.
The following steps provide an overview of the mortgage process:
- Loan Pre-Qualification - Initial Loan Interview
- Loan Application - Initial Loan Application
- Processing – Documenting the Loan File
- Underwriting – Reviewing the File
- Closing – Review Title sign Closing Documents
Pre-Qualification and Initial Loan Interview
During the initial interview your loan agent will be going through the mortgage process and the items that will be needed to issue you a loan pre-approval. They will be going over your request and reviewing your personal information to determine your mortgage loan needs. You should be ready to provide them with as much information you can, so they can accurately assess your information. The mortgage lender can then obtain you a pre-approval along with determining the maximum loan amount for what you will qualify and maximum home purchase price.
A preliminary credit report will be obtained to determine your credit rating. It is very important to have good credit as your credit history and credit score are very important factors in obtaining a mortgage loan approval. During the process your income and debts will also be reviewed as your income and debt are relative to the amount you want to borrow. The loan agent will also need to know amount of the down payment you want to make or can make.
Your loan Representative is responsible for following the loan from the beginning of the application through the funding of the loan. They will keep you up-to-date throughout the process and on the status of your loan application. They will always be available to answer any questions you may have and they will guide you toward obtaining your financial objective.
The Loan Application is a very important part of the mortgage loan process. Once the loan application has been filled out and completed it will provide details about you and your financial position along with information about the subject property. You will need to determine the down payment amount you will be making and collect all the documents that will be needed for your loan application. The Loan Representative will ask for information pertaining to your income, assets and liabilities. Along with completing the loan application you will be asked to provide other additional supporting documentation such as: 2 years tax returns, W-2s, current pay stubs, bank statements and other pertinent documents.
Once the loan application has been completed and the initial information has been collected your loan Representative they will recommend a loan program that best fits your needs. It is crucial that you give accurate and truthful information throughout the whole process. This will speed your application along and help eliminate the chance of any unexpected surprises that could cause a delay or keep you from getting your mortgage loan.
In addition, your loan Representative will provide you with a Good Faith Estimate of the settlement charges associated with obtaining a mortgage loan. You will also receive a Truth in Lending Disclosure which details what your payments will be and a settlement booklet and breakdown of the closing fees associated with obtaining a mortgage loan.
You will be provided with a checklist of documents that should be brought with you when completing the loan application. You will also be asked to sign the initial loan documents along with authorizations and verifications that will be needed for the processing of the mortgage loan. You will also have to provide the documentation for the down payment funds as you will need to show the source of the money. You should understand that the loan process will go smooth and timely if you provide the needed documents as quickly as possible.
During loan processing step your loan file is documented and examined to ensure that all the required information is collected and the file is complete, accurate and meets mortgage lender’s requirements. The loan processor will order credit reports, a property appraisal, verify income, verify the down payment, order a title report and make sure the other necessary documents are gathered at this time. The ultimate goal during the loan processing step is to gather accurate facts that can later be used for making decisions about approving the mortgage loan. You will need to work hand in hand with the loan processor to help complete your mortgage loan file by providing all the needed documents like pay stubs, tax returns, bank statements and other required documents.
The loan processor will document your loan file by collecting the entire necessary income and credit document needed for a mortgage loan underwriter to review and approve the loan. When your documents are received the loan processor will then verify and validate all the information to be true and correct. Verification requests will be sent to employers, mortgage servicers or landlords and lending institutions to verify funds. This is done by mail or by fax when possible or if a document is needed in a rush. The processing of your mortgage loan usually takes about one to three weeks but it can often be delayed if documents are not submitted or when third parties do not respond to the verification requests.
When all the information is collected the loan processor will then verify that the mortgage lender loan conditions and loan guidelines have been met. Once the loan file is complete the mortgage loan processor will submit the file to the underwriting department for an underwriter to approve your mortgage loan.
Once your offer has been accepted either the real estate agent or mortgage lender will open escrow. The escrow company is a neutral third party that is authorized by a title insurance company and is responsible for coordinating the closing and deed transfer. They are also responsible for overseeing the signing of documents, collecting some necessary documents and disbursing funds to complete the transaction. The title company will search the properties history and make sure that you are getting a clear title from the seller with no liens or encumbrances.
After the mortgage loan processor compiles the documents needed to complete your loan file it goes to the mortgage loan underwriter to approve the file. Underwriting involves the evaluation of all the documents that make up the loan file to determine if the mortgage loan should be approved or denied based on the factual information presented. The underwriter will review your credit to make sure you are a good credit risk. If your credit is not the best you may still qualify for a loan. The underwriter makes the final determination for eligibility and approves or disapproves the loan.
The underwriter will review the applicant’s income, credit history and the property they are purchasing. It is the underwriter’s job is to make sure the loan fits the program guidelines. The applicant must qualify for the loan based on both income and credit. An underwriter looks at four major factors when considering an application. They are income, assets, credit and the value of the property. The property must also meet the underwriting standards set by the mortgage lenders and agencies that it meets the criteria. All of your loan documents will be verified and reviewed for completeness, accuracy and legibility.
If the underwriter feels he/she cannot make a decision based on the information received you may be asked to provide additional information or documentation and anything else they feel is necessary to document your loan. They have ultimate power and decision authority over the approval of your mortgage loan. After all underwriting factors have been carefully evaluated, the underwriter will make a decision to approve or deny the mortgage loan you have requested. If approved, the loan package is signed and dated then sent off for loan closing. Your loan representative will inform you of the decision and confirm it with a written loan commitment. If your loan is denied, you will be informed in writing. The underwriting process under normal conditions takes between two to five days.
Once the mortgage underwriter has approved the loan it will be sent to the closing department to collect the required closing conditions and schedule the loan closing. This is the final step to obtaining your mortgage loan. A closing agent will contact you and coordinate a closing date and time with you. The loan representative will also have knowledge of the approval and conditions to close and they will go over with you.
This is a meeting with the seller, agents for the lender and title company and any real estate agents to sign the final documents, pay closing costs and down payment and transfer ownership of the property.
Once all parties have signed the documents and made the necessary payments the meeting is adjourned and you will become the new property owner as the transfer ownership of the property will occur. The following are steps in the closing process:
Conditions to Close
All mortgage loan underwriters have standard closing conditions and will usually require borrowers to provide further documentation to support the loan file. When all the conditions have been satisfied the mortgage loan file will receive a final approval and get a clear to close.
After your mortgage loan is approved, you will be required to review and sign the final loan documents. You want to make sure that the interest rate and loan terms are what you were promised. Also verify the accuracy of the name and address on the loan documents. This will normally take place in the presence of a notary public.
Prior to the closing the borrower must obtain homeowner's insurance with a carrier of their choice. This information must be provided to the mortgage lender within 48 hours of closing..
You should be prepared to go to the bank and get a cashier’s check for the closing for your down payment and closing costs as personal checks are normally not accepted..
You should locate your picture ID as the notary public will require that you have your picture ID with you at the signing..
Clear To Close
When the loan representative gets the clear to close they will then assist in the scheduling and coordinating with all the parties the time and location to sign the final documents and close the mortgage loan.
Draw Documents and Sign Documents
When everything is scheduled the mortgage lender then draws the loan document package and sends it to the escrow company or the closing attorney. This can be done by overnight delivery, fax, or electronically. It usually takes one to two days. The loan signing step of the closing process usually takes about an hour and is done at the escrow company’s or at the closing attorney’s office..
Funding and Document Recording
The escrow company will review the loan documents and prepare for loan recording. The mortgage lender will wire funds to the escrow company trust account along with the funds you bring to the closing. Once all the funds are received the escrow company will take the deed and mortgage instruments to the county recorder for recording. Once recording is complete you are now in title to the property, you will receive the keys after the signing and can move in as soon as you can..
It is important to know that on a refinance mortgage loan transactions federal law requires that you have three days to review the documents before your loan transaction can close. On a Purchase transactions do not have a three-day rescission period. The total time frame from the application to funding will vary with different lenders and the types of loans they offer. Typically, if the process goes smoothly you will have your loan within approximately 3-6 weeks..
Remember, you should never hesitate to ask questions. Ask whatever you need to so that you understand the entire process.