In this article, we propose to discuss the basic steps in the mortgage loan process.
Where to begin?
That’s the big question. The whole loan process can seem very confusing and overwhelming at times. Just keep in mind throughout the whole process you maybe need a mortgage expert to guide you through the buying experience. We will show you different scenarios so you can choose the best scenario that fits your financial needs.
1. Getting pre-approved
The first step in applying for a loan is to get pre-approved by a mortgage lender. Before you even get into a car with the realtor, you are going to want to go through this step.
There are two different types of pre-approvals:
Being pre-qualified means your credit report is pulled and reviewed by the mortgage originator. Income and asset information is taken verbally but it is not verified.
On a pre-approval, the mortgage originator pulls your credit report and review that, and they are also going to ask you to provide with the supporting documents that need verifications: income, assets, funds for closing, etc.
Being pre-approved is much better than being pre-qualified because a lot of agents will not accept a pre-qualified letter; they want a pre-approval and they know there’s no surprise coming down the road.
2. The loan process
It takes at about twenty to twenty-five days to close a mortgage loan. Some of the national banks are taking longer than that, forty-five to sixty days.
There are a couple of things that happen throughout the course of the process:
– The loan application is taken and shown to the clients, credit is pulled, and supporting documents are reviewed. You get pre-approved and the pre-approval letter is provided to your realtor and to yourself. It takes one to three days.
– Once you are under a contract, your loan will go into what’s called “a loan setup”. Basically, you get the title work ordered, verifications ordered, appraisal ordered, certificates ordered, and some other miscellaneous reports needed for the file. This process can take anywhere from two to three days, depending on how quick those verifications come back.
– The processing stage can take anywhere from five to seven days and this is where your file is actually getting prepared for the underwriter to review. At this point, verifications are received and reviewed and final automated underwriting reports are run.
– The underwriting stage takes anywhere from two to three days. The underwriters do an evaluation of the credit and the property to make sure everything follows the agency’s guidelines. At this point in time, you are going to go straight to a full approval or to a conditional approval. A conditional approval means your file has been approved by the underwriter, but there are a couple of items that require further review. Once you provide additional documents to meet the requirements, you get the full approval.
3. The mortgage loan application
What can you expect at application?
First, there are a couple of ways you can fill out a title loan application. At this point in time, you are going to be asked a couple of questions – certain things about your life such as employment history, saving habits, marital status, you have any ownership of any additional properties, etc., and other questions to determine the ability to repay the loan. Your credit report will be pulled and reviewed for credit and financial history.
The important documents you need at the application is two months of all pages of all of your bank account statements checking savings, investment, retirement and stocks, and any other accounts that may hold down your payment money. You will be also required thirty days of pay stubs, your most recent two years of W2’s, your most two recent years of tax returns, and a copy of your driver licenses.
Important information to complete an application
If you do have a property at this point in time, your interest rates will be considered and locked in. Interest rates can be pretty volatile at times and they do fluctuate from day to day.
Points. A borrower can pay points. Points represent a percentage of your loan amount. If you want to buy down your interest rate, basically one percent of your loan amount will probably buy down your interest rate by a quarter percent. The determining factor is going to be how long you plan on staying in the house. If it is a short period of time, we do not recommend you buy down your interest rate.
Down payment. Usually, lenders consider a twenty percent down payment. When you put this money down, you are buying what’s called “private mortgage insurance“. This type of insurance protects the lender.
There are a couple of different costs associated with your loan. You have closing and prepaid costs.
The closing costs are one-time expenses that are incurred and charged on your loan such as application fees, points, title, insurance, credit report, and processing fees.
When budgeting for your new home, make sure you are factoring in the closing costs and other prepaid costs.
These expenses are re-occurring costs associated with the loan. They can be:
– interim interest from the day of closing until the end of the month
– one-year hazard insurance
– costs associated with establishing and escrow account for taxes and insurance. This way, when your taxes and your insurance become due, they will be paid by the loan servicer and it’s not something you are going to have to pay out of the pocket.
– HOA – if your house is located in a neighborhood that has a homeowner’s association, this will cover these costs.
Submitted for processing
After your application has been setup, your loan is submitted for processing.
You will get the title opened with the title company, homeowner insurance with the ability to pick your own provider, and appraisal to ensure the property meets the market value and FHA standards.
At this point in time, you will be required for VOE (verification of employment). The loan processor contacts the employer for an official verification.
Submitted for approval
When all of the documents are gathered, your loan package will be submitted to the underwriter who will assess if you are eligible for the mortgage loan you are applying for. The underwriter can either approve or reject the application based on your credit history, your employment history, your assets, and your debt-to-income ratios.
At this point, you will be given a conditional approval. Underwriters usually come up with some additional requirements and documents before they give the final approval on the loan. However, this is not a matter of concern, because your loan is already approved, but they need some additional information to make sure the loan meets the agency guidelines.
4. The final steps
At this point in time, the documents will be sent to the title company for you and the seller to sign.
Once all funds are collected and the contract has been signed, the title is transferred and the funds are disbursed to the seller.
Now, the house is yours! Congratulations!