EDITORS NOTE 10/23/2015: This post has been updated to include the new disclosures and wait periods required per the Dodd Frank Act effective on loan applications dated October 3, 2015 and later. Click here to read the updated post.
The process of getting a mortgage consists of several stages and typically takes anywhere from 20 – 40 days (or more) depending on how prepared you are, what mortgage program you have selected and if it’s a purchase, the closing date may dictate how long the process will take. The steps below may not take place in the exact order I have listed and some steps may happen simultaneously.
Prequalification. The prequalifcation stage may consist of obtaining rate quotes from various lenders and providing lenders information (verbally or electronically) about your home buying or refinancing scenario. This is probably the most ideal time to “shop” for your lender (if you have not already made your selection).
Preapproval. During the preapproval stage, you will need to provide your lender with documentation that proves your income, assets and funds for closing. Your credit report will also be ran (if it was not ran during the prequal stage). Your pre-application is updated with information based on the documentation provided. Your mortgage originator will also help you fine tune your selection for your preferred mortgage program. It is likely that your information will then be ran through an automated underwriting system (aus) depending on your loan program.
If you are buying a home, and your loan is preapproved (based on the aus or human underwriters review), you should receive a preapproval letter from your lender. If your loan is not preapproved, your lender should provide you with guidance as to what needs to improved (typically credit, income or assets) in order to achieve a preapproved status.
Sometimes preapproval letters need to be updated as credit report and supporting documents “expire”. It’s very important that once you’re preapproved, you unplug your shredder.
You may need an updated preapproval letter that is customized for a home you’re makin gan offer on. It’s always a good idea to check in with your mortgage originator before making an offer so they can provide an updated preapproval letter and an updated rate quote scenario based on the home you are considering.
NOTE: Some home buyers might opt for a Letter of Loan Commitment over a preapproval letter – this is basically an amped up preapproval letter.
Mutual Acceptance (if buying a home). Once you have a signed around purchase and sales agreement, a complete copy of the purchase and sales agreement needs to be provided to your lender.
Processing. Once you have provided your lender with a purchase and sales agreement or you have decided to proceed with a refinance, you’ll begin the processing stage of your transaction. The loan processor works closely with your mortgage originator to prepare your transaction for underwriting. During this stage, title insurance and escrow are ordered (based on the purchase and sales agreement, if you’re buying a home). The processor will review and update the application and will request any additional information or documentation from you.
Initial Disclosures. After you have provided the purchase and sales agreement, or have a complete application, you will also be receiving your initial loan documents. At Mortgage Master, these documents are prepared and provided by our compliance department. It’s important to promptly review, complete, sign and return the preliminary loan application package.
Locking…or not. Depending on when your closing date is, you may or may not want to lock in your rate. Some borrowers may opt to “float” (not lock) in their mortgage interest rate. A mortgage interest rate may (and will) change until the rate is locked in. Your rate needs to be locked before an underwriter can issue final loan approval.
Once you lock in your rate, you may have additional documents pertaining to the lock to sign and return to the mortgage comapny.
Home Owners Insurance. You will need to provide your lender with the contact information of who will be handling your home owners insurance. The lender will request a binder from your home owners insurance provider.
Appraisal. If you are buying a home, the appraisal is typically ordered after the home inspection (assuming there is one) has been done and the results are satisfactory. If you are refinancing, an appraisal is typically ordered when you have initial loan approval. When the lender receives the appraisal, it is reviewed and then provided to the borrower. If the appraisal comes in less then the sales price or expected value of the home, there may issues as the lender will based the loan to values on the lower of the sales price or appraised value.
The appraisal may also have items that need to be addressed. A popular item in Washington state is missing carbon monoxide detectors (Come on, sellers and listing brokers – make sure you get those CO2 detectors installed in the home BEFORE the appraisal is ordered).
If the appraiser calls for items to be repaired on the appraisal, a re-inspection (aka 442) may be required.
Underwriting Approval. Once processing has a complete loan application with supporting documents, they will submit the loan to underwriting. Underwriters will review the application, supporting documentation and lender guidelines. They will then either issue a “conditional approval or possibly deny or suspend the file. Assuming the loan is approved 🙂 their may be “conditions” to the approval that need to be resolved before they can issue a “clear to close”. Examples may include documenting the source of a large deposit, writing a letter explaining employment history, providing updated paystubs, or missing pages of a bank statement.
After the initial underwriting approval (conditional approval) is issued, the file is sent back to processing to work on getting the items requested by the underwriter.
There are two main types of underwriting conditions:
- prior to doc (ptd) = items that must be resolved before docs can be ordered.
- prior to funding (ptf) = items that must be resolved prior to funding (closing).
Review and re-submission of conditions. The processor and/or mortgage originator will work on obtaining the underwriting conditions. This often means that you, the borrower, will be hearing from the mortgage company with (hopefully a short) list of additional items that are needed. This is not unusual… and you’ll probably feel like you’ve been asked for the same thing over and over again. The mortgage process is redundant – there is no way to sugar coat it. The good news is that by this time, you are almost finished!
Once the processor has obtained everything from the underwriters conditional approval list, the file is sent back to underwriting for review. If the documents appease the underwriter, final approval is issued. Sometimes, the documents provided may trigger additional questions or requirements from an underwriter, in which case, they issue a revised approval with new conditions to be satisfied. This will continue until final approval is reached.
Final approval. Oh happy times!!! This means that at the very least, all prior to doc conditions have been met. There may or may not be prior to funding conditions remaining. At this point, loan documents can be prepared.
Docs. Once loan documents are prepared, they are reviewed and then sent to the escrow company.
Signing. Escrow typically likes to wait until they have received loan documents from the lender before scheduling an appointment to sign. As someone who worked in the title and escrow industry for many years, I don’t blame them! This is to avoid having to reschedule appointments and closers typically have pretty tight schedules. The escrow officer will review the lenders documents and prepare an estimated HUD-1 Settlement Statement for the lender and agents (if it’s a purchase) to review and approve. Sometimes corrections need to be made to the HUD – it’s important this is done BEFORE your signing. Plan on your signing to take at least an hour – possibly longer depending on how many questions you may have.
Signing typically takes place 1-2 days (hopefully more) before closing.
Final document review. Once you have finished signing, the escrow company will send the documents to the lender for review and the documents to recorded (the deed of trust and deed, if it’s a purchase) to the recorder’s office in the county the property is located in.
Re-verification. Just prior to funding, the lender will check with employers to makes sure nothing has changed with the borrower’s job status and a soft pull is done on the credit report to confirm that no changes to the credit profile (no new credit or large purchases on existing credit accounts).
If there has been changes to employment or credit, the transaction may be delayed as the new changes may have to be approved by underwriting. It’s important to remember that your financial profile should reflect your final loan application.
Funding and recording. Once your employment and credit have been re-verified, the lender will contact the escrow company to “balance” the HUD. This means they are making sure that everything is correct with the HUD-1 Settlement Statement down to the penny. Once they balance, the lender will wire funds to escrow (this takes longer than you would expect in this day and age) and provide escrow with instructions for recording.
Recording takes place at the county where your home is located. The vesting deed and deed of trust (mortgage) are recorded and become public record, essentially announcing to the world that you own a home and have a mortgage. Because recording creates a public record, you can expect to be very popular (even more than before the process) and to receive constant piles of junk mail.
Closing. Yes!!! The moment we have all been waiting for!! Once your transaction has funded and recorded, you are officially “closed”.
Now that wasn’t so bad… was it??? 🙂
PS: If you are considering buying or refinancing a home located anywhere in Washington state, I am happy to help you!