Mortgage Loan Process Explained
Getting a mortgage loan can be an intimidating and frustrating process, but it doesn’t have to be.
How you experience buying or refinancing can be determined by your choice of a loan officer. Mortgage companies are only as good as the people they hire, so choose wisely.
Your loan officer is your connection to your real estate agent, your title agent, the underwriter, as well as multiple other people that perform roles throughout your loan application stages. If you have a bad communicator, it’s more likely that you will have a bad mortgage experience.
Lots of things can be faked or embellished. For example, lack of experience can be disguised behind a big mortgage company name. But how helpful and how well one communicates will be easy to asses – especially if you have a problem. So develop a “problem”. Ask questions. Ask them without the fear of looking silly, or bothering your loan officer. Something that simple can save you a lot of headaches moving forward.
Mortgage Loan Process Steps
1. The Loan Application
The first step is to submit an online loan application. If your situation is a bit more unusual, or if you have concerns, I would also follow it with an email to your loan officer. Don’t be afraid to email before submitting an application in order to avoid an unnecessary hard credit inquiry.
I use a credit servicer that allows me to do a soft credit pull without causing an inquiry. If that’s something you would prefer to do, just let me know in advance so we’re on the same page. My email is [email protected]
If you have credit issues and think your credit score might need some work, you can also head over to www.annualcreditreport.com before applying for a loan.
Get a copy of either of your credit reports, and email it to me for a free analysis. I can walk you through the steps needed to improve your score before you even apply.
If everything looks good on your credit report, I’ll review your employment history and ask you for your most recent pay stubs covering 30 days worth of income. If your income is variable, or if you receive bonuses or overtime, I’ll also need the last paystubs of your previous 2 years, showing the year to date income breakdown.
If everything checks out, I’ll issue a Pre-Qualification letter, and I’ll also provide you with a fees worksheet so you know what to expect in terms of your monthly mortgage payment and closing costs. If your loan officer has Pre-Qualified you but hasn’t provided you with a fees worksheet.. it’s probably because they don’t want to be shopped around. Which is exactly what you should do next.
While you’re shopping for a home (and potentially a new loan officer), start tracking down the rest of the documents you’ll need once you go under contract. A comprehensive list can be found by reading my Loan Documents Checklist article.
2. Initial Disclosures – The Loan Estimate
An initial disclosure package will be emailed to you within 3 business days from receipt of a full application.
Once you have a home under contract, the actual mortgage loan process can begin.
You’ll be issued an initial loan disclosure package within 3 days of providing your loan officer with a copy of your purchase contract.
A really important document included in this disclosure package is your Loan Estimate, which will detail the estimated costs and fees involved. You will need to acknowledge receiving these initial loan disclosures before the appraisal can be ordered, and before your file can be pushed into an underwriter’s queue for review.
3. First Round Of Underwriting
Underwriting can take anywhere from 24h to 3 days, depending on how busy the specific lender handling your file is.
Based on the documents checklist mentioned above, the more complete your loan file goes IN, the fewer conditions (and surprises) you’ll have coming OUT of underwriting.
Conditions are requests for additional documentation.
There are countless loan officers that can’t get their ducks in a row, so multiple underwriting sessions are required. This is never a good sign or business practice. There may be issues that are uncovered too late in the process because the proper paperwork wasn’t submitted up front.
If there are any deal breakers on your mortgage loan – this is when they should be revealed. Most files should expect to receive an easy “conditional approval”, with conditions such as:
-a satisfactory appraisal report
– complete and accurate title paperwork
– maybe a letter of explanation from you
– maybe an updated bank statement
4. The Appraisal
The appraisal will be ordered by your loan officer through a third party appraisal management company approved by the lender.
I usually wait for the initial underwriting approval before ordering the appraisal – unless we’re on a tight deadline or if I’m extremely confident the loan won’t have any issues.
Once the appraisal order is in, it usually takes one or two days for the appraiser to make contact with the seller, or the seller’s agent. The appointment is scheduled, and the final report is usually prepared and submitted within 5 days or so of that (depending on the appraiser’s workload).
By law, you have a right to receive a copy of your appraisal no later than 3 days before your loan closes. These days, you’re generally going to automatically be sent a copy once the report is submitted.
For those who wonder: the seller will never get a copy of your appraisal. Neither will your real estate agent, unless you forward them a copy. The appraisal is for your eyes and the lender’s use only.
5. Second Round Of Underwriting
By the time the appraisal comes back, you should have your conditional approval, along with any additional required documentation.
If the appraisal is good (value is the same or higher than the purchase price and no repairs are required) your loan will go back into the underwriting queue. Conditions will be reviewed, and a clear to close (final approval) will be issued if and when all the conditions are signed off on.
6. Closing Disclosure
You might receive a few different Loan Estimates throughout the loan process.
Each time a fee or the interest rate gets adjusted, you should receive an updated copy notifying you of the change.
The final Loan Estimate is called the Closing Disclosure. Regulation demands a 3 days waiting period before allowing you to sign closing documents with the title company – the waiting period starts once you sign to acknowledge the Closing Disclosure.
The Closing Disclosure will have the exact terms and fees you will see at the closing table. The lender and the title company will work together to issue it based on actual invoices rather than the previously used estimates.
Acknowledge it as soon as it is sent out via electronic signature.
You’ll want to make sure the interest rate is what you expected, as well as the cash to close if any. Always ask questions if you feel something is off – things sometimes get missed, and they’re always easier to fix earlier in the process.
7. Closing Documents And Signing With Title
Once the Closing Disclosure is acknowledged and you have the clear to close, closing documents are ordered. Your real estate agent or loan officer will schedule you with the title company for the actual loan signing. It’s perfectly ok to get excited at this point – you’re almost done.
After signing closing documents, funding will usually happen the next day on purchase loans (same day funding can be an option if all parties sign early in the morning).
The lender will send the funds to the title company by wire transfer, and the title company will disburse them and record the title of the property in your name with the County Recorder.
This is when most people get the keys from their real estate agents but check with your agent and your purchase contract to be sure (look for the terms of possession).
In the case of refinance loans, there is an additional 3 business day waiting period after signing closing documents, and before your loan is allowed to fund. This is known as the “right of rescission”, in which a borrower can change their mind and cancel the transaction.
Note that the right of rescission does not apply if you are refinancing with your existing lender.
My Commitment To You
I don’t lose paperwork, and I don’t miss deadlines.
I keep everyone updated because clear communication has helped me avoid potential disasters over and over again.
Best of all, I love what I do, and I take a lot of pride in always improving and speeding up my process. And you will too. Because mortgage brokers do it better.
Mortgage Loan Timing And Second Opinions
Not all mortgage companies work the same way, so you’ll want to ask potential lenders what their timeframe is. 3-4 weeks to close a loan is an acceptable timeframe, but it can be done faster if things are coordinated properly.
If time is of the essence, make sure to ask exactly how that will be achieved and get it in writing – don’t rely on a verbal promise.
A Hassle-Free Mortgage Process
If you’re having issues with your current loan officer, feel free to contact me for a second opinion. I’ll either win you over or put your mind at ease. Some delays are perfectly justified within the mortgage process, but not explaining them properly is just bad business practice. Moving is enough stress in itself, your loan process shouldn’t be adding to that.
Please feel free to reach out with any questions to [email protected] or at (801) 473-3154. Email is the best way to reach me, but texts are also encouraged. I am usually available after hours and on weekends should you need a Pre-Qualification Letter for that perfect home you just decided to buy.