THE LOAN PROCESS

THE LOAN PROCESS

How does the loan process work?

Even with all the different mortgage lenders, brokers, banks and officers out there in the mortgage market many steps of the loan process are exactly the same.

Once you have made the decision to pursue applying for a mortgage loan with a lender, the Loan Officer/Broker or Lender Representative and their assistants will work with you to obtain the necessary documentation required for a loan decision to be made.

The Steps in the Loan Process

The Loan Application:

This is the first step; you will need to have all pertinent information ready before you start. You will be asked to provide your current address and current job history for 2 years, your current rate of pay, your year to date earnings, your social security number for all parties applying for the loan, your checking and other asset accounts with balances, your liabilities with balance and monthly payment information etc...

By law lenders are required to provide you with a good faith estimate and a truth in lending disclosure within 3 days of your loan application. Many lenders will provide you with these documents immediately. You should ask for these documents right away.

Prequalification:

Lenders take the information in your loan application and obtain a prequalification for your loan based on the information you provided in your loan application and your credit report. This information will determine how much you are approved to borrow and what loan terms you can qualify for.

Gathering Supporting Documentation:

Once the lender has pre-approved your loan based on the information you have provided, you will be asked to provide supporting documentation to validate the information in your loan application. For purchase loans, the lender will then provide your real estate agent with a prequalification letter to help them better negotiate a contract for you. This gives you greater buying power. You usually have to ask for this letter.

Locking Your Loan:

You can let your loan float or you can lock you loan rate. Lenders can lock your loan interest rate the day they receive your loan application or as far out as 60 days from closing your loan, and as close as 1 to 2 weeks before you close. The choice to lock and when to lock your rate is up to you.

Processing of the Loan:

Your loan information is then transferred to the Loan Processor to verify that all documentation needed to process the loan has been collected. The lender will then order an appraisal that estimates the current value of the property. A title search and title insurance are required to ensure that there are no other liens on the property. Once documentation is complete, everything is transferred to the Underwriter.

The Underwriter:

This is a very important step. Remember that your loan has several eyes on it. Your loan will go to an underwriter who has the power to provide a final loan approval. The Underwriter does not have direct contact with you but he or she is the one who reviews all of the documentation and makes the decision to approve or deny your loan. Without this step you do not have a loan. At this point the lender will have already ordered your appraisal, title work, and proof of homeowner's insurance and submitted your loan to the underwriter. The lender will call you immediately upon conditional approval from the underwriter to obtain any additional documentation (called loan conditions) the underwriter has asked for - requests of this nature are purely down to the underwriter’s discretion, if they ask for something you MUST provide it, this is a non-negotiable request. It is vital to get your information to the lender as quickly as possible; delays in getting documentation will only delay your loan closing.

Final Loan Approval:

Once the lender get all the items (loan conditions) to the underwriter that they have asked for then you are ready to close. You have a locked interest rate (if required) at this point and have cleared any conditions the underwriter has requested.

Getting Docs Out:

Your loan documents will be signed at the escrow company. The loan docs can also be signed at a place of your choosing by using a traveling notary. Your lender will send your documents to the escrow company within 24 hours receipt of all documentation requested. The escrow company will send you a final settlement statement which shows you what your final funds to close the transaction are the day before your closing or the morning of your closing.

Note: some states do not use escrow companies but instead use real estate lawyers.

Closing your loan:

Your closing day, time and escrow company is generally negotiated through your real estate agent (if it is a purchase loan) or through the escrow company (refinance loan). If you are closing a refinance transaction you have the power to pick your own time to sign the docs. Once you have signed your loan documents the escrow company will send a request for funding to the lender.

Funding your loan:

Purchase loans generally fund the same day unless closed late in the day, in which case your loan will fund the following day so that the title company can receive the wired funds in their office from the lender. Refinance loans fund 3 days after you close your loan as per US laws (3 day right of rescission). Loans do not fund on Saturday or Sunday, only on business days.

Disclaimer: The above is general information on the loan process. Please check with your realtor and lender for more detailed information. The loan process can vary from state to state.