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, you will likely 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
Regardless of how you submit your loan application – online, in person or over the phone; a hard credit inquiry will follow.
Soft inquiries can only be performed by creditors that you currently have accounts opened with. If a loan officer ever tells you that they’ll do a soft credit pull, they’re either lying, or totally clueless.
If you have credit issues and think your credit score might need some work, 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 at [email protected]. I can walk you through the steps needed to improve your score before you even apply.
If everything looks good on your credit report, the next step is to submit 2 months of pay stubs and maybe 2 years worth of W2’s for accurate income calculation. A Pre-Qualification letter will follow on a purchase loan, and I generally issue mine the same day.
In the meantime, start working on putting together the rest of the documents you’ll need. 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.
The initial disclosures will require your acknowledgement by way of electronic signature. Signing does not legally bind you to a loan, but it is required before proceeding to underwriting, or ordering the property appraisal.
A really important document included in this disclosure package is your Loan Estimate. Your loan officer should go over it with you and explain the costs and fees involved. Don’t be afraid to ask questions – it’s not the most intuitive form, despite the regulator’s efforts to simplify things. Fees are generally estimated high, and some won’t even apply – but need to be disclosed regardless.
3. First Round Of Underwriting
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.
Underwriting usually takes 1-3 days, depending on how many files were submitted before yours.
If there are any deal breakers on your mortgage loan – this is when they should be revealed. Otherwise, expect to receive easy conditional approval (based on a satisfactory appraisal report, complete and accurate title paperwork, and maybe a letter of explanation from you or some missing bank statement, etc)
4. Ordering The Appraisal
The appraisal will be ordered by your loan officer through a third party appraisal management company approved by the lender.
I personally wait for the initial underwriting approval before ordering the appraisal. I might order it right away if I’m extremely confident the loan won’t have any issues, or if we’re on a time crunch. But I much prefer the “better safe than sorry” approach.
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 of that. Give it about 10 days total until you’ll get a copy of the report – more or less depending on how busy the real estate market is. By law, you have a right to receive a copy of your appraisal no later than 3 days before your loan closes.
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 will be issued if and when all the conditions are signed off on.
6. Closing Disclosure
You might receive a few updated 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 (it will also be an electronic signature), and like before, your loan officer should walk you through it.
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 – mistakes occasionally happen, 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 on a time crunch). 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” and should have been removed when the Closing Disclosure waiting period was introduced… but wasn’t.
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. And I work for a brokerage that allows me complete freedom of the process. My files don’t wait in line on a processor’s desk, and I don’t need anyone’s permission to lock the interest rate.
I have full responsibility for getting things done, and I absolutely love it. And you will too. Because mortgage brokers do it better.
Oh, and I also speak “real estate agent.” You’d be surprised how handy it is!
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.
My Goal Of A Hassle-Free Mortgage Process
I’ve made it my goal to provide a hassle-free mortgage process, and I’m proud to say it is a goal I’ve achieved.
If you’re having issues with your current loan officer, you might want to consider contacting 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 – not explaining them is just bad business practice. Moving is enough stress in itself.
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 available after hours and on weekends should you need a Pre-Qualification Letter in a pinch.