Many borrowers like to apply for a mortgage loan and get pre-approved prior to beginning the search for their dream home. If you are one among these, you need to contact your loan officer and provide them details of the property you intend to buy and probably a copy of the sales contract as well. The mortgage application has a section where a borrower must fill out the property details.
Your lender will update the application upon receiving information about the home you have chosen to buy. If you have not already applied, and so have not yet pre-approved, but a seller has accepted your purchase offer, you will need to contact a loan officer or mortgage broker and fill out a mortgage application soon. You will probably bypass the pre-approval step with faster loan processing.
Behind the Scene – What happens after you apply?
A lot happens after you fill out application and submit documents. Your direct involvement in any of these processes is never necessary. You are informed only about the outcome of these processes. It sounds interesting to get an idea of what happens behind the scene. Maybe you get to know a thing or two that can help you get your loan approved.
Loan Processing
The details on your application must be checked for completeness and correctness before it can be presented to an underwriter.
The job of a loan processor is to collect information, check the accuracy of your documents, pull a credit report to verify your credit standing, contact your employers to verify information about your income, do a double-check on all figure-related information and ensure that everything is stacked in the proper order.
It is important that you provide all documents as asked by the loan officer and do not let any error, advertently or inadvertently, to creep in your application.
Home Appraisal
Even if you have been pre-approved, you are far from getting fully approved. A home appraisal is what prevents an underwriter to fully approve your loan.
As soon as you update your application with property information, your lender will order a home appraiser, taking the services of a licensed real estate appraiser who must evaluate the property and complete a Uniform Residential Appraisal Report.
As a borrower, you are entitled to receive a copy of this report. The job of the appraiser is to determine how much your property is worth. This information is vital for a mortgage underwriter to take a final decision.
Mortgage Underwriting
Depending on the lender, a number of things must also happen before the mortgage underwriting process can begin. Your lender may order flood certification and need reports of title search and escrow ordered by a real estate attorney.
When everything is in place, the underwriter begins to review the application, supporting documentation, financial information, sales contract, appraisal report and other things as necessary for the risk assessment.
Approved or Declined – What Next?
A mortgage underwriter can approve or reject your mortgage application. There can be a few other situations as well. Here is what might happen after an underwriting process gets completed.
- Approval without condition: You will feel like walking on air. But there is still a lot to do before the closing.
- Conditional Approval: Your lender will ask additional information, which you must provide to continue with the application.
- Counter Offer: Suppose you have applied for a 30-year fixed mortgage with 15% down payment. Your lender may approve you for a different loan arrangement, maybe asking you to pay down 20% at closing.
- Rejection: Final approval is not guaranteed even if you are pre-approved. Your lender is required by law to send you a denial letter in case of rejection. This letter contains the reasons why the lender can’t approve your loan request at this time. You may want to discuss with your agent for possible alternatives.
Get Started to Close
If you have not been declined outright, you have a reason to smile and feel contented. But there can still be a few road blocks before you close successfully. Usually referred to as pre-closing, this refers to a number of things that might vary from state to state and from lender to lender. Here is a general outline of what you might be expected to do before closing your mortgage.
- You will soon receive a commitment letter from your lender, specifying details of your mortgage and also any conditions that you need to complete before closing. You must comply with the lender requirements within the stated time-frame.
- The commitment letter contains important information about your loan, such as the principal amount, the term, the interest rate, the APR and the monthly payment. You need to return a signed copy of the letter within five to ten days. You may also need to pay part or all of the origination fee at this time.
- You need to contact a title company to do a title search for the property you are buying. Obtain title insurance that must be equal to the home’s full value. It protects the buyer in case of a legal dispute that arises over the title of the property in future.
- Your lender may also require you to obtain homeowner insurance, which can protect you in the event of fire, theft and other potential liabilities.
- If your property lies in flood hazard zone, you need flood hazard insurance as well. Additionally, you want to do a pest inspection before moving in.
- Do a final walk-through to ensure everything is in the same condition as it was when you visited the last time. If your seller has agreed to do repairs as suggested by your home inspector, this is the best time to review the same.
- Finally, you will receive a copy of HUD-1 Settlement Statement from your loan officer at least a day before the closing date. This document lists various fees and services associated with the closing of your mortgage loan. It is important to compare the items on this document with those on Good Faith Estimate.
- You may even find a section in your HUD-1 Settlement Statement that compares the charges on the Good Faith Estimate to the charges on this statement. If you find too much change or more than allowable limits of change, you have a right to ask your loan officer and get these corrected. The document also lists the date and time of the closing.
