1. Loan is submitted to processing after getting under contract on a home
- The mortgage consultant collects and verifies all documents necessary to prepare the loan file for underwriting. These documents provide us with everything that we need to know about the borrower, and the property they are financing.
- During processing, the mortgage consultant:
- Begins verifying assets, income and employment
- Orders a home appraisal to determine the value of the property which is purchased by the buyer
- Runs various compliance and eligibility checks to ensure the process advances quickly and smoothly
- Common documentation requested by underwriting includes:
- Evidence of Earnest Money
- Asset Verification
- Borrower Letter of Explanation (LOX)
- Gift Letter
- Copy of Note
- Source Large Deposits
- Verification of Employment (VOE)
- Fully Executed Sales Contract
- Next step: Processing submits the loan file to underwriting for initial review and approval.
2. Loan is submitted to underwriting
- The underwriter begins reviewing all documentation to determine whether the borrower qualifies for a mortgage.
- While the mortgage professional and loan processor will do their best to submit a complete file, an underwriter may still have questions and/or require additional documentation to satisfy any conditions for a final approval.
- In addition to the loan file submitted by processing, the underwriter examines:
- The completed appraisal
- Credit report
- Other ancillary documentation pertinent to the loan
- If the loan is approved, the borrower receives a list of conditions required to be met before receiving the loan documents.
- Next step: The loan coordinator contacts the borrower to provide them with underwriting's preliminary decision on the loan.
3. Loan is conditionally approved
- A conditional approval means that the underwriter has signed-off on the parameters of the loan and most of the documentation, but still needs a few more items before fully approving the borrower.
- The loan coordinator contacts the borrower to review the conditional approval and discuss any items needed from them, as well as any ancillary documents that we needed to finalize the loan. This documentation can include:
- The completed appraisal
- Additional verification and standard in-house items required for closing
- Once all conditions have been obtained, the loan coordinator will send the file back to the underwriter for a final review and approval.
- Next step: Once the loan is approved, a mortgage professional will schedule the closing.
4. Loan is Clear to Close
- "Clear to Close" means the underwriter has signed-off on all documents and issued a final approval.
- The mortgage team schedules the borrower's closing and reviews the Closing Disclosure (CD).
- The CD is the standardized document that details the finalized terms for the loan, including a breakdown of all costs and fees.
- Next step: Closing the mortgage.
- Closing processes vary slightly depending on the type of transaction, as well as local, state and municipal laws.
- The type of transaction—purchase or refinance—determines who can provide the borrower with accurate final numbers.
- Purchase: The borrower can receive estimated figures from their mortgage professional, but they'll need to speak with the borrower's local title company or real estate attorney for a final amount.
- Refinance: In most states, the borrower won't be required to use an attorney to close. In that case, the borrower should speak with their mortgage professional for their bottom-line.
- What to bring to the closing:
- Form(s) of photo identification
- Check to cover the closing costs and down payment, unless the money was wired. Note, the borrower must only use funds from an approved account.
- Whether purchasing or refinancing, prepare to sign a lot of documents!
- Purchase: While the process varies by state, typically a professional explains every document and notes where to sign. The lender’s wire may need to clear before the borrower is handed the keys and provided with copies of all the documents.
- Refinance: Depending on local laws, the borrower meets with an agent from the title company who explains each document to be signed. If refinancing a primary residence, the loan will fund once the 3-day right of rescission has expired (on the fourth day). Once the rescission period has expired, the loan can no longer be cancelled. If refinancing an investment property or second home, the loan will fund on the same day.
- Next step: Funding the mortgage.
6. Loan has Funded
- The final step in the loan process is now complete: the borrower's loan has funded!
- At this time, all documentation is complete and the funds for the loan have been disbursed to the seller (purchase) or to the payoff of the prior loan (refinance).
- The borrower should have received their first payment statement at the closing. This should be used to make the first and possibly second loan payment.
- Final step: The borrower receives correspondence in the mail from their final servicer (the company to which they will make all subsequent payments). This information details where to make future payments and how to setup auto-pay if desired.
Types of Loans Explained
Here are the primary highlights of a conventional mortgage loan:
Down payments typically start around 5% of the sale price
Mortgage insurance is not required if you put 20% down or 80% of loan-to-value (LTV: the ratio of a loan amount to the value of the home)
As mentioned above, the maximum loan amount is $453,100
Gift funds are allowed to be applied to the down payment is Conventional right for you?
While this may vary from lender-to-lender and state-to-state, here are the typical requirements to qualify for a conventional loan:
A steady employment history
Proof of income and assets
A healthy credit score (credit score requirements vary from lender-to-lender)