The Mortgage Loan Process
Buying a home is a complicated process. This page is designed to inform you about the various steps you will encounter during the mortgage loan process.
Pre-qualification is the first step after the initial conversation between the lender and the potential borrower. Information is gathered about the borrower’s income and debts in order to make a financial determination about 1) how much home they can afford and, more importantly, 2) how much home they want to be able to afford.
The application is real beginning of the loan process. The buyer completes a mortgage application with the loan officer and supplies all of the required documentation for processing. If you work a full-time job, expect to have at least the below documents readily accessible. Self-employed borrowers will need additional information.
- W2’s from the previous 2 years
- Most recent two paystubs
- Two months documentation of accounts to be used for closing, such as bank checking and savings accounts, CDs, money market accounts, mutual funds or retirement accounts.
Various fees and down payments are discussed at this time and the borrower will receive a Good Faith Estimate (GFE) and a Truth-In-Lending statement (TIL) within three days that itemizes the rates and associated costs for obtaining the loan. There are many new lending rules to be aware of.
Processing and Initial Underwriting
Loan processing is the next step. The “processor” reviews the credit reports and verifies the borrower’s debts and payment histories as the verification of funds/deposits (VODs) and verification of employment (VOE) are returned.
If there are unacceptable late payments, collections for judgment, etc., a written letter of explanation is required from the borrower. The loan officer will order an appraisal, which the processor reviews along with checking for property issues that may require further discernment.
The processor’s job is to put together an entire package that can be easily and quickly underwritten by the lender, so expect to get additional requests for documentation and information (called “conditions”) during this phase.
After you find a property and have an accepted offer, lender underwriting will typically occur, though if a file is complicated then a preliminary underwriting may be a good idea. The underwriter is responsible for determining whether the complete loan package is an acceptable loan. If more information is needed, the borrower will be contacted again to provide whatever documentation the underwriter requires.
Mortgage insurance underwriting occurs when the borrower has less than 20% of the loan amount to put towards a down payment. At this time, the loan is submitted to a private mortgage guaranty insurer, who provides extra insurance to the lender in case of default.
After processing and underwriting is complete, the title insurance is ordered, any outstanding approval conditions are met and a closing time is scheduled for the loan.
Closing usually occurs between days 25 and 45 of the loan (depending upon the sales contract). At the closing, the lender “funds” the loan with a cashier’s check, draft or wire to the selling party in exchange for the title to the property. This is the point at which the borrower finishes the loan process and gets the key to their new home!