The Entire Loan Process
In an effort to alleviate some of the stress associated with the home buying process, we've provided you with a chronology of the loan process from the application to the closing; we hope it helps.
Step 1) Your Loan Officer (LO) will take your loan application. He or she will also review your credit report in an effort to Pre-Approve your home loan and let you know how much of a loan that you’ll qualify for. He or she will also analyze you total debt and your income.
Step 2) Your LO will also explain how your credit will affect your financing. Additionally. he or she will need to get your signature on the following documents: Loan application, Disclosures, Loan Estimate Estimate / Fee sheet, as well as a copy of your pay-stubs, W2s, bank statements, tax returns, retirement statements, along with a copy of your drivers license, and social security card.
Step 3) If your eligible, a Pre-Approval Letter will be issued. This letter will let you and the buying agent know exactly how much of a loan you’ve been approved for. The approval is primarily based on your credit, employment, income, debt and funds in the bank. Now, go find your new home.
Step 4) Your LO will run your application and your credit profile through the automated underwriting system for a preliminary loan status report. The status report will generate one of three responses:
Approve Eligible, Refer Eligible, or Refer.
Approve Eligible means that based on the systems general loan guidelines the borrower(s) are qualified for the loan. However, the mortgage lender will have the final say and will typically have additional requirements for the borrowers. Refer Eligible means that the system needs a human being to underwrite all aspect of the loan due to its limited compatibility to the systems general loan guidelines. Refer means that the loan does not meet the base requirements for approval and will be declined.
Step 5) If a positive outcome is determined by the automated system, the LO/processor will continue processing the loan by having the following verified: your employment, your rent and/or mortgage payments, your funds to close, etc.
The LO/processor will order all of the necessary documents from the title company (and if a mortgage broker) begin to shop your loan to several banks for the best deal. The “retail” Mortgage Banker on the other hand will only be able to offer you what’s currently available in their limited portfolio. (Some mortgage banker may have a little more flexibility)
Step 6) The LO/processor will wait until all negotiations and inspections are completed and agreed to before ordering the appraisal. He/she will check with the title company regarding the status of the title commitment, tax certificates, survey, wiring instructions, and any homeowner association transfer fees. Once all of the necessary paperwork has been compiled the loan file will be sent to the lenders underwriter for review.
Step 7) 5 to 7 working days later, your LO/processor should receive a “Conditional Loan Approval” from the lender. This approval will list any outstanding documents required by the lender. Once all of the conditions have been satisfied he/she will receive a “Clear to Close.” Typically, the sales contract will specify when the closing will take place. The LO/processor will notify the lender where to send the closing documents and choose an appropriate time for closing.
Step 8) A Title office and or a Law office are the typical locations where home loan closings take place. (In Texas it’s typically a Title office) However it’s not unusual for certified closing agents to perform the function at the home of the buyer, seller, or a neutral location. All of the necessary documents that require a signature will be sent or brought to the location of the closing / settlement.
Step 9) The closing will require that you to provide identification and sign a number of documents. All of the documents are important however, the three most important are:
1. The Closing Disclosure (the new version of the HUD-1 Settlement Statement)
2. The Promissory Note
3. The Deed of Trust
The Closing Disclosure will review all of the final fees associated with your loan. Make sure thatthe fees line up with the ones that appeared on your initial Loan Estimate.The Promissory Note will confirm the Interest Rate as well as the Principle & Interest portion of your monthly mortgage payment.The Deed-in-Trust will confirm the property address and the name of the new owner (s) of the property. Make sure that the address as well as the spelling of your name (s) is correct.
Step 10) Lastly, your settlement agent will take all of the signed document to the back office. He or she will fax or email the “three most important documents” along with your ID, as well as some other closing documents. The lender will review them for accuracy and if all is correct they will fax a “funding number” to the closing agent.
The funding number will allow the title or settlement office to release all of the funds associated with your transaction. The seller will get his or her funds, the borrowers will be formally responsible for the mortgage loan, all third parties will receive their funds and finally you’ll receive the keys to your new home.