Steps You will Encounter During the Loan Process
Understand the mortgage loan process! Then, you can be prepared to ask the right questions and make smart financial decisions. After all, it always helps to know what’s coming at each stage of the process.
The loan process starts with pre-qualification. Mortgage pre-qualification involves a lender determining how much money you are qualified to borrow. So, pre-qualification is an estimate. It is based on a simple financial overview: it is not a guarantee.
Pre-qualification is based on your credit score, monthly debts and other details. To approve homebuyers for the type and amount of mortgage they want, mortgage companies look at two key factors: the borrower’s ability to repay the loan, and the borrower’s willingness to repay the loan.
So, learning how much money you will be eligible to borrow will ease some of your stress and show how much you can truly afford.
2. House hunting and making an offer
Once you have been pre-qualified, the house hunting can begin! Visit properties with your agent and find the home of your dreams. When you pick the home you want, you then make an offer.
Luckily, your real estate agent knows all about this process, since conditions must be complete before the deal is finalized.
When you make your offer, you’ll also submit the earnest money deposit. This is a cash deposit made to secure your offer on the house. It also shows that you are serious about buying.
Speak with your real estate agent ahead of time about how large the earnest money deposit is likely to be. Also, prepare to write a check when you make an offer if the market is competitive!
3. Exploring rates and hiring a lender
Now that you’ve found a home and your offer has been accepted, it’s time to make a final decision about your lender. Consider different programs and rates. Also, think over the mortgage program and decide how long you plan to keep the loan.
Shopping for a lender can be confusing. Several programs exist with different rates, points, and fees. An experienced mortgage professional can evaluate your situation and recommend the most suitable mortgage program. So, this will allow you to make an informed decision.
Remember that your rate does not just depend on your application. It also depends on the type of loan you receive and the current market conditions.
4. Completing the mortgage application
The mortgage application is the true start of the loan process. Once you select a lender, the next step is to complete a full mortgage loan application. This usually happens within the first week of the loan process.
Most of this application process is completed during the pre-qualification stage. But, a few additional documents are needed, such as the full purchase agreement and proof of your money deposit.
You receive a Loan Estimate (LE) within three business days of the submission of the application to the lender. So, this lists the exact rates, fees, and terms of the loan you’re being offered.
5. Home appraisal
Your lender arranges for an appraiser to provide an independent estimate of the value of the home you are purchasing. The appraisal lets you know that you’re paying a fair price for the home.
Also, in order for the loan to be approved at the contracted purchase price, the home will need to appraise for the contracted purchase price.
6. Mortgage processing and underwriting
Once the application is submitted, the processing of the mortgage begins. For you, the buyer, this is a waiting period.
Behind the scenes, the loan processor orders your credit report, appraisal, and title report. The information on the application, such as bank deposits and payment histories, are then verified. Any credit derogatory entries require a written explanation. The processor examines the appraisal and title report checking for property issues that may require further investigation.
The entire mortgage package is then put together for submission to the lender. The underwriter is responsible for determining whether the package is acceptable to grant you your mortgage.
During the underwriting process, they may come back with questions. You should respond as quickly as possible to ensure an “approved” status.
7. Closing day!
Closing day is an important day! Once the loan is approved, the file is transferred to the closing and funding department. The funding department notifies the broker and closing attorney of the approval and verifies fees. The closing attorney then schedules a time for the borrower to sign the loan documentation.
On closing day, prepare yourself to sign quite a few papers. After the documents are signed, the closing attorney returns the documents to the lender who examines them. Then, if everything is in order, they arrange for the funding of the loan. One of the more important documents is the closing disclosure. This confirms the costs found on your original loan estimate.
Then, final disbursements are made. Once everything is in order, you’ll sign your documents, and receive the keys. You’re now officially a homeowner! Let the celebrations begin!
Although this process seems tedious, a typical mortgage transaction takes between 14-21 business days to complete. Don’t be afraid of the loan process.
Your loan officer is there to serve as a guide along the way. Ask questions and make the most of your experience. After all, purchasing a home is a huge life decision!
Start asking those questions today by answering a few question and connecting with a professional loan originator.