As you prepare to purchase a new home, having an idea of what is happening downstream will help you navigate the process and help us all avoid the big rocks.
Mortgage Lending Process
This helps you determine the type of mortgage that will best fit your financial situation, and allows you and your real estate agent to set the pricing parameters for your search.
1. Initial Indication. If you have a fair sense of your credit score, we can generally provide everything you need to analyze competing loan options in a 15-20 minute conversation, without collecting any sensitive personal information.
2. Loan Application. Stepping into the details, you can complete the loan application online when it is convenient for you. It takes about 25 minutes and covers three (3) primary areas:
a. Credit. Your FICO score and credit history; requires Social Security numbers, dates of birth, and the current address for each borrower.
b. Income. The monthly income that is used to cover the monthly mortgage payment; typical documentation includes copies of recent paystubs or, for self-employed borrowers, two years of tax returns.
c. Assets. Understanding the source of funds that will be used to cover the down payment and associated closing costs; typical sources include a bank account, an investment account, a 401(k) loan, the sale of your current home, or a gift from a relative.
3. Pre-Qualification Letter. To prepare a written pre-qualification letter, we need copies of the documentation supporting key income and asset figures provided during the loan application process. For a Pre-Approval Letter, we need to allow additional time to submit your documents for underwriting review and to respond to any questions that may arise.
Once your offer is accepted and you are under contract, we need a copy of the executed contract to begin preparing your loan. We will review the purchase price, your down payment, and current interest rates to verify your loan structure.
We will then finalize your loan application, update loan pricing, and prepare a financial estimate to reflect the specifics of your transaction. After you have reviewed and confirmed the details, we will lock in your interest rate.
DISCLOSURES & DOCUMENTS
After finalizing your loan application, you will receive a package of loan disclosure documents for your signature. We will also provide you with a list of the additional supporting documents we will need to submit for loan approval (to the extent you did not already provide them as part of the Pre-Qualification Process).
HOME INSPECTION & APPRAISAL
At the same time we are launching the loan process, your real estate agent will often be scheduling a home inspection. The purpose of the home inspection is to identify any major issues with the home prior to purchase. We will also order an appraisal to verify the fair market value.
An appraisal is required by the lender and represents an up front cost, so we are careful to order it early enough to meet our deadlines, but not too early in case there are deal-breaker issues identified with the home inspection.
As soon as we have all of the supporting documents, we will submit your loan package for review by an underwriter. The underwriter will evaluate the documents and determine if there are any additional “conditions” to approving your loan. It is rare to have no additional conditions, so expect to be asked for a few more documents at this point.
FINAL APPROVAL & CLOSING
Once all loan approval conditions have been satisfied and the appraisal has been reviewed, we will receive your final loan approval. This means that you are past underwriting and the loan is “Clear to Close.”
The Title Company will then start preparing the loan closing documents that will show the final costs and the amount of funds you’ll need to bring to the closing table. Once we finalize all of the figures, the “Closing Disclosure” is submitted for approval. You will also receive a copy and, if everything looks good, you are ready to close.