MORTGAGE LOAN PROCESS

1. MORTGAGE PRE-APPROVAL

A loan pre-approval sets you up for a smooth home buying experience. A few things have changed since the real estate meltdown a few years ago. For purchase transactions, real estate agents will first want to know if you can get a loan. In the old days, financial institutions were doling out money to anyone with a heartbeat. Unfortunately, soft lending standards helped fuel an eventual rash of foreclosures. Suffice it to say, conditions on the ground have changed since then. Today, the best way to approach a real estate agent is with a lender pre-approval in hand. It shows that you’re ready and able to buy.

Pre-approvals don’t take much time. They involve pulling a three-bureau credit report (called a tri-merge) that shows your credit score and credit history as reported by third-party, respected institutions. Within the credit report, a lender can see your payment history (to see if payment obligations have been on-time and in-full) and your lines of credit (past and present).
I will be able to pinpoint a loan amount for which you qualify. This pre-approval will save you a lot of time since you will be able to focus exclusively on houses in your price range.

Mortgage pre-approvals also signal to the seller that you’re a serious buyer. Being prepared is particularly useful when making an offer on a house. If you intend to negotiate the deal (and why wouldn’t you?), a pre-approval gives your offer a little extra gravity. Being ready to go can also help in a hot market where it’s not uncommon for sellers to entertain multiple, simultaneous offers. Sellers tend to focus on the path of least resistance: the buyer who is pre-approved.

Getting Organized
During the pre-approval phase, one of the best things to do is to gather up documents needed for mortgage pre-approval. Anything you can do, to prepare in advance, will reduce the stress when you find the right home and make an offer. At that stage, you’ll be able to hand over all your paperwork to me so I can make check the information you gave me with your actual income documents to make sure you can qualify for the home you are looking to buy. This will make sure there are no surprises when we are waiting for the underwriter to give us the final approval.

2. MORTGAGE LOAN APPLICATION

A few documents are needed to get a loan file through underwriting. Some of the information will be gathered online or over the phone. A lot of it will already be stated on some documents you’ll provide, like employer address which can be found on a pay stub. While the list looks long, it won’t take much effort to round them up. The lists below will help you keep track. I will also indicate which items will not be needed and also help you prioritize which items to send in first.

Employment – Name of current employer, phone and street address; Length of time at current employer; Position/title; Salary including overtime, bonuses or commissions
Income – Two years of W-2s; Profit & Loss statement if self-employed; Pensions; Social Security; Public assistance; Child support; Alimony; Assets; Bank accounts (savings, checking, brokerage accounts)
Real property – Investments (stocks, bonds, retirement accounts); Proceeds from sale of current home; Gifted funds from relatives (e.g. down payment gift for FHA loan)
Debts – Current mortgage; Liens; Alimony; Child support; Car loans; Credit cards; Real property

Be prepared to explain any missteps in your financial background. It’s good to have dates, amounts and causes for any of the following:

• Bankruptcies
• Collections
• Foreclosures
• Delinquencies
• VA Certificate of Eligibility (COE)

If you are applying for a VA loan you will need proof of your military service. The VA can provide a Certificate of Eligibility (COE). I will be able to pull it for you.

3. MORTGAGE LOAN ESTIMATE

All the documentation from above is pulled together to produce the Loan Estimate. The Loan Estimate describes the terms and predicts the costs associated with your loan. By law, you must receive it within three days of your application.

The Loan Estimate includes closing costs, the interest rate and monthly payments (principal, interest, taxes and insurance). A notification is included if interest rates can change in the future, as would be the case with Adjustable Rate Loans (ARMs).

At this stage, you’re not yet approved nor denied a loan. A loan estimate is simply a statement of the terms and estimated fees in plain English. It’s like getting an estimate for car repairs; no one has picked up a wrench yet, you’re just getting a sense of the work that will be done and how much it’ll cost.

4. MORTGAGE LOAN PROCESSING

Opening the File – Loan processors gather documentation about the borrower and property, review all information in the loan file and assemble an orderly and complete package for the underwriter. They’ll open the file and get the following wheels in motion:

• Order credit report (if not already pulled for a pre-approval)
• Start verifying employment (VOE) and bank deposits (VOD)
• Order property inspection if required
• Order property appraisal
• Order title search

5. MORTGAGE LOAN UNDERWRITING

The underwriter is the key decision-maker. They closely evaluate all the documentation prepared by the loan processor in the loan package. They cross check to see if the borrower and property match the eligibility requirements of the loan product for which the borrower applied. For example, for a VA loan, the underwriter will verify the borrower’s military service.

Underwriters review at the borrower’s credit history and their capacity to repay the loan. The collateral (the property) is also weighed into the decision. They verify information and double check for accuracy. They’ll sniff out any red flags that indicate potential fraud.

Underwriting Decision

With everything reviewed, the underwriter approves or rejects the loan. Sometimes underwriters approve the loan with conditions. For example, they might ask for a written explanation of borrower’s credit history, such as late payments or collections.

Lock Interest Rate

At some point after initial approval and before closing, the interest rate for your loan is locked. Interest rates trade up and down every day that bond markets are open for business. You and I will choose the time to make the commitment.

6. MORTGAGE LOAN CLOSING

Documents (everyone in the mortgage industry calls them loan docs) are drawn, meaning they are printed out and sent to the title company (or attorney’s office) where the closing meeting takes place. You can expect a big stack of papers.

One of the documents worth calling attention to is the Closing Disclosure. It should look somewhat familiar. Think of it as the companion to one the first documents you received in the mortgage loan process, the Loan Estimate. The Loan Estimate gave you the expected costs. The Closing Disclosure confirms those costs. In fact, the two should match pretty closely. Laws prevent them from differing too much.

Closing Meeting

The closing is the moment for which you’ve been waiting. It’s time to sign a bunch of documents and complete your purchase or refinance. Some docs seal the deal between you and the lender. Other docs seal the deal between you and the seller (if it’s a purchase transaction).
Please bring two official forms of identification such as a driver’s license and passport to the closing.

If closing costs are not rolled into the loan amount, talk to your loan officer about how you will transfer funds either electronically or via cashier’s check. Closing costs include settlement fees (the cost of doing the loan) plus any prepaid expenses (put in an escrow account) for homeowner’s insurance, mortgage insurance and taxes.

A checkbook will come in handy for any small differences in the estimated balance owed and the final amount.
When everything is signed, your participation in the closing meeting is done. Congrats! The very last closing items happen in the background; the title company will complete the recording and funding.