The Loan Process
1. Loan Pre-Approval vs. Loan Pre-Qualification
Getting pre-qualified is the initial step in the mortgage process, and it's generally fairly simple. You supply us with your overall financial picture, including your debt, income and assets. After evaluating this information, we are in a better position to give you an idea of the size of the mortgage for which you qualify. Pre-qualification can be done over the phone or on the internet, and there is usually no cost involved. Loan pre-qualification does not include an analysis of your credit report or an in-depth look at your ability to purchase a home. Since the pre-qualification is based only on the information you provide us it is just an opinion on what you might qualify for which is very helpful in having a better idea of the purchase price you might be able to afford.
Getting pre-approved is the next step in the process and tend to be much more involved as this is where we gather actual information about your income and debts, pull your credit report, and fill out a mortgage application. This then allows us to tell you the specific mortgage amount for which you are approved. You'll also have a better idea of the interest rate you will be charged on the loan and, in some cases, you might be able to lock in a specific rate.
With pre-approval, you will receive a conditional commitment in writing for an exact loan amount, this allows you to look for a home at or below that amount. Clearly, this puts you at an advantage when dealing with a potential purchase, as the seller will know you're one step closer to obtaining an actual mortgage.
2. Applying for a Loan
The mortgage application is the beginning of the loan process, it can occur at the pre-approval stage before or after you have found a property you want to purchase. If you have an existing property and wish to refinance this is the beginning of the refinancing process. You complete a mortgage application for a particular loan program and supply all of the required documentation for processing. Various fees and down payment options are discussed at this time. The loan officer will deliver a Good Faith Estimate (GFE) and a Truth-In-Lending Disclosure (TIL) within three days that itemize the rates and estimated costs for obtaining the loan.
3. Processing your Loan
Your application package is submitted to an automated underwriting system that sets forth the necessary documentation required for loan approval. The processor reviews the credit report and documentation to verify your employment, debts, and payment history. If there are unacceptable late payments, collections, judgments, etc., the processor will most likely request a letter of explanation from you. The processor also reviews the appraisal and survey and checks for property issues that may affect final loan approval. The processor's job is to put together an entire application package for the lender's underwriter.
4. Underwriting the Loan
The lender's underwriter is responsible for determining whether the application package prepared by the processor meets all the lender's criteria. If more information is needed, the loan is put into "suspense" and you will be contacted to supply more documentation.
If the underwriter approves the loan, the lender issues a conditional commitment to lend, orders title insurance, works with you to clear all conditions to its commitment to lend, and then schedules a closing time. Conditions to the lender's commitment may include issues with credit, income, or the property that may arise during the processing and underwriting process.
5. Funding the Loan
Funding your loan will occur after all conditions are cleared and the lender issues a full loan approval. At the closing, the lender "funds" the loan with a cashier's check, draft or wire to the closing agent, who disburses funds, in exchange for the title transfer to the property. This is the point at which you finish the loan process and actually refinance or buy the house, subject to the lender's loan. Closings occur at different places in different states. For instance, some states require that the closing take place at a closing attorney's office, while others use a title or escrow company. You may also be able to close at your home.