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!
Great article Rhonda! You explain the steps in the mortgage process in a realistic, easy to read and very well written manner. This is great, this should be read by everyone who is starting the mortgage process.
Hi we are waiting to hear back from the underwriter right now. We have had 2 closing dates come and go and this past Friday we were told our loan is still waiting for final review. Our loan officer tells me my loan if fine we are just waiting for the underwriter to sign off and we are next in line. I told him I am concerned they will that we have been waiting this long and they will decline us. I mean it being in final review is it a good chance we will get approved? And if it does not I m not sure how to move forward. Can someone give me insight?
Hi Jean, when my team submits a loan to the underwriter, we do our best to make sure we have a very complete loan application as to try to reduce any conditions that the underwriter may have. Assuming your loan officer has done this, the underwriter should be able to issue a loan approval. The delay in reviewing your transaction could be due to higher volumes.
Of course, I don’t know your financial scenario – so my comments are assuming you have a straight forward loan application.
Thank you for posting this article! We are conditionally approved and submitted the additional forms last week. You have answered so many questions that I have had throughout this process.
Congrats, Brittany! I’m glad I could be of help answering your questions about the home buying/mortgage process.
This is a great article! I wish I came across this six weeks ago when I started the home buying/mortgage process. Very informative!
Thanks, Tracy!
Hey does an initial approval means I’m o. Good standing
Hi Latoya,
That’s a little hard for me to address. What does “initial approval mean”? Did your Loan Officer just run your scenario through the automated underwriting program or has an underwriter reviewed your complete application?
Question: I am a listing agent and my client received a “pre-approval” letter from the buyer’s lender ( a mortgage broker) that stated, “We have obtained underwriting approval for you, so the only items needed to complete your application are satisfactory appraisal, preliminary title and purchase contract. The strengths of your loan application include: High level of income, Stable employment history, low debt-to-income ratios”
The purchase offer was EXECUTED, the appraisal value was for more than the sales price and the prelim was clear but the lender refused to fund, stating the buyer did not have 24 months of stable employment. My buyer kept the home off the market, was about ready to quit her job to retire and now has to re-market the home and is not able to retain the earnest money since the buyer did not release the contingencies. Does this sound like mis-representation to you? Should the Mortgage Broker be held accountable for having the home off the market as well as for making statements that were not factual?
Hi Bob,
In my opinion, it sounds like the loan officer did not run the employment by an underwriter prior to issuing the preapproval letter. If the lender is a “mortgage broker” they may not have had access to an underwriter to get their opinion on employment.
But with that said – there are things that could happen are most commonly found during the process.
-Maybe the borrower’s employment or income changed during the loan?
-Maybe the loan officer did not complete all income/employment documents (like tax returns)… and maybe the borrowers tax transcripts had conflicting information that caused the denial…or the verification of employment came back with a surprise from the employer.
When I have a borrower where something may be questionable, I will have one of our underwriters review the scenario in order to avoid a scenario like you have discussed. I will also obtain tax returns and, if needed, a verification of employment from the borrower’s employer.
Regardless, I highly recommend that listing agents and buyers agents contact the loan officer before accepting an offer to do a “sniff test” on the loan officer and the preapproval. This is especially important since October with TRID as some lenders are interpreting that they cannot verify or request additional documentation from a borrower until we have an application (this typically doesn’t take place until after the lender has the purchase and sales agreement). Obviously if a lender is not allowed to collect or request additional documentation – a preapproval letter is worthless.
Amazing article. Very Informative.
What a great article. Thank you so much for breaking this down for 1st time buyers like myself.
Question: can you tell me what comes first the underwriter or Project review? I was told on everything was sent to the underwriter and it would take 72hrs. to hear back. Today I was told it was sent to project review. Can you please explain? Thank you.
Ruby, I would say that typically the loan goes to underwriting first. It depends on the process of the mortgage company. I’m assuming you’re talking about a condo?
Hello,
This was fantastic article. It helped me understand the process. We have had two closing dates on my aunts home. We were told yesterday the loan packet has gone back to underwriting. We were expecting to close in the beginning of the month. We were told the closing would be quick by the title and now the it appears the bank it holding the process up. Your article clarified some things for me. Thanks.
Thanks, Kelley! The mortgage process is not at all intuitive. I’m glad my article helped.
Thank you so much Rhonda for taking the time to write this article. You have no idea how much you helped someone like me to understand the process. I am first time in the process i just received a message saying that the preliminary approval is conditional. I didn’t understand what that meant,after reading your article i got some clarification. So again thank you for a wonderful article.
Thanks, Blaise!
Coming up on our 3rd close date and are being told it’s unlikely to happen again and now we have to be out of our apartment with no where to move…all we were told was our loan was sent to corporate and the appraisal was ordered. No idea how long it’s going to be. Very frustrating!
Charisse, I’m so sorry. Have you tried contacting management with the mortgage company?
Rhonda,
Great Article. We are in process of funding for remodel. Appraisal came back fine, underwriting going…. File has been sent to PMI. Would the bank send the file to PMI if the loan wasn’t pretty sure it would close?
Thanks,
Hi Sue, sending your file to the private mortgage insurance company to underwrite/review is a normal part of the process.
Great Read and thank you. We currently just signed a rate lock form and sent the requested docs to the lender. This waiting us driving me nuts, and is making me worry. What happens after rate lock letter is sent in?
Lovely1, great question! After your rate is locked, your lender has 3 days to send you a revised loan estimate as that is a bona fide “changed circumstance” to your loan application.
If you are feeling anxious, I recommend contacting your mortgage professional asap. Any professional would not want their clients to feel that way.
I am currently in the process of buying a home. My husband and I have received a conditional approval. The lender is currently waiting on a copy of my tax transcripts for the last three years. My concern is – 2013 my tax preparer made an error and I owed the IRS $7K. When I received the letter from the IRS, I immediately called them to see what was going on. I then set up a payment arrangement. I have been making my payments on time for the past year. They applied my 2015 refund to the balance I owe. I current owe $2900. The IRS has not issued a lien or anything, nor does this show on my credit report as a judgment owed. Can this affect us during the final approval stage?
Hi Tia, your lender will most likely add the payments that you’re making to the IRS to your debt-to-income (dti) ratios. As long as your dti stays below your program guidelines, you should be okay.
I really don’t think a pre-approval letter means a thing, I’ve been going thru a sale to a VA qualified buyer & the amount of paperwork wanted by escrow (a HUD from 10 years ago, because they couldn’t find where a $275K loan was paid) (divorce papers from 28 years ago) even though I have refinanced this parcel 5-6 times since then with no problem. Now the lender gave a conditional approval, with 1 item that blew me away (asking the age of the seller) isn’t this age discrimination? Although I don’t know what the reason was for. After buying & selling for years, this has been the most stressful loan I have ever encountered, so pre-approval really means nothing! So after signing you still have to wait more time for funds?? Never has happened before.
Hi Sonja,
A preapproval doesn’t mean a lot if your loan officer or lender aren’t top notch. Sometimes a preapproval is only worth the paper it’s written on – I think I’ve addressed that on this blog in the past. How did you find this lender?
The Closing Disclosure that triggers a 3 day wait period before you can sign the remainder of your loan document is fairly new.
This was by VA United, the loan officer is doing a great job, it’s Underwriting that is asking for conditions, like my age, the other conditions were pretty normal, like verifying buyers tax payment for 2015,(which they said he still owed, but had verification they were paid)..Escrow had me looking thru paperwork for a week trying to find the HUD paying off the $275K, thought that was their job? And divorce papers from 28 years ago! Thanks for info on Closing Disclosures.
If you are really unhappy with your escrow officer & it’s a day before (supposedly closing) NOT! Can you change Escrow companies & how long would it slow the process down
Sonja, typically the escrow company is designated on the purchase and sales agreement (at least in the greater Seattle area). To try to change it would probably mean having to get an addendum to modify the contract. It could also potentially delay the transaction. I recommend talking with your real estate agent to see what they advise. Good luck!
We started the process on June 16th and hopefully have reached the tail end of it! We received conditional approval on July 8th with commitment letter, had to jump through a bunch of hoops to satisfy the underwriter and now are waiting for the appraisal report! They appraised the property on July 14th or so and apparently are having a hard time finding “comps”. Our processor said that her manager was placing a call to the appraiser to see what is going on, because our commitment letter and rate lock expire on the 15th (which is now 10 days away!) so, I asked if we were going to be charged for an extension (if they’d even grant us one) and she said they’d extend with no fee due to this. Thank God! But my question is, is this normal? The processor told us that the underwriters haven’t come up with any new docs that they require from us, just waiting the appraisal. Our sales contract stated closing would be “on or about August 1st! This process is maddening!! Now the LO is saying we probably won’t close until at LEAST the middle of the month or later because once they RECEIVE the report, the underwriter has to go over it and then submit it to settlement agent and THEN to us for 72 hour review!!!! We are FHA btw…thoughts???
Hi Justin,
It’s hard to know if it’s “normal” without having all the details about your transaction. When did your lender receive a copy of the purchase and sales agreement?
What is unique about the property that is making comps so difficult? (Appraisals are taking longer these days…it’s unfortunate the government stopped allowing LO’s to select appraisers as appraisers no longer have to provide a level of service in order to be competitive IMO).
Your LO is correct that once the revised appraisal is received, it will need to go back to underwriting. Depending on whether or not you opted to waive your right to receive (every) version of the appraisal, there may be a wait period involved with that. You’ll want to get all forms requested from the lender back to them asap.
In addition, once you finally do have the final formal loan approval, the lender will provide you with a Closing Disclosure that once signed and dated by you, has another 3 day wait period (again, thank our government) before you can sign the remainder of your loan documents.
Hopefully your LO is communicating the delays with you (sounds like they are) and your real estate agent.
Good luck!
Hi, our loan officer told us last Friday she was waiting on paperwork from compliance…then she would send to us to sign documents and email back. We just received them today, what’s the next step. Our inspection is this Thursday.
Review and sign the documents. Ask your lender questions, if you have any. Provide any documentation they request promptly. Let your lender know when your inspection is satisfied and if they can proceed with the appraisal (if they haven’t done so already).
Hi My name is Hardeep, just have a question about employement. My husband and I both are buying a house. I have been working at the same job for 6 years but my husband did not have any stable job. Is that be a problem???
Hello Hardeep, if your husband’s employment has been in the same line of work and if there is a good reason why his employment has not been stable, there is a possibility that his income may be able to be used. Other factors include how his income is structured. If he is paid hourly, it may be challenging to use his income because hourly income is typically averaged over the last two years. If he is paid a salary (fixed annual amount), then that may be able to be used.
If his income is not stable, if possible, you may want to just use your income to qualify for buying a home. What would happen if you own a home with a mortgage payment and you do not have your husband’s income to help pay the mortgage and other bills?
Rhonda – say it again and again….a pre-approval is not worth squat. It is a false sense of security that unsuspecting buyers are requested to get and then – they may still get declined. We lost $16K in EMD because we had a pre-approval and we signed a contract and we discussed our options with the mortgage broker and base don his advice – we agreed on a non-refundable EMD and guess what …..loan fell through.
Hi Angela, I’m so sorry! That’s terrible. I never recommend that my clients do a non-refundable ernest money deposit – there’s too much to risk. What if something is wrong with a property or if a lender guideline dramatically changes (highly unusual) or if one of the clients loses their employment? Too much is at risk.
Also, if you are working with a true “mortgage broker”, they are essentially a mortgage sales person who finds a mortgage program and lender to sell your loan to. That lender processes and underwrites the loan. As a correspondent lender, we process, underwrite and fund the loan from our main office. If I have any question about a clients preapproval status, I’ll have our underwriters review and approve the loan.
You are correct that they are only worth the paper they are written on – depending on who signed and prepared that letter.
We are in the process of purchasing a home and we were notified last Wednesday that the appraisal took place and we followed up with our mortgage broker today and we are being told we won’t find out about the appraisal until this Friday. This seems long and so we followed up with our broker since this is making us anxious and we were provided no real comfort. We have no idea if we have been conditionally approved or where underwriting is in the process. This is the third home we have purchased from this broker in the past 2 years and think it will be the last. Is this lack of communication normal? Does it really take a week and a half to receive an appraisal after it has taken place? Your article is awesome and thank you for making the process transparent to those of us that aren’t experts.
Hi Sam,
I’m afraid to stay that appraisals ARE taking a very long time. Regulations prevent loan officers from being able to communicate directly with the appraiser and, to top that off, there is a severe shortage of appraisers. I think you should ask your loan officer/mortgage broker why there is less communication about the appraisal. Let me know what they say! Good luck 🙂
How do you qualify for the down payment assistance program?
Hello Leo m,
You qualify for the down payment assistance program at the same time that you apply and qualify for the first mortgage. If you’re buying anywhere in Washington state, I’m happy to help you!
Hello Rhonda,
My wife and I are purchasing our first home. We are currently experiencing hair loss, high anxiety, and extreme blood pressure fluctuations.
We have been pre-approved, found our house, agreed to price with sellers, had inspections (solid house), completed appraisal (well above purchase, 7k, which I hear is extremely rare) signed disclosure, obtained HO insurance, met every asked underwriter condition, and have signed a second “updated” disclosure where our additional “premium” insurance was calculated into the escrow.
How is this the home buying process? This is asinine! Shouldn’t most of this be completed before you ever walk into a house if you are more than perusing?
The current experience seems dated.
If I take out a loan to buy a car, I know to the penny what I will be allotted and all verification is complete before I even step on the lot. Is this a possibility on a mortgage should we ever do this again?
Also, why is straight commission such a struggle? I took a new role at the company I’ve been working with for over 5 years and have moved to straight commission starting the first of this year. This was conditional based off historical evidentiary data. I accepted this position knowing I would not be below $xxx dollars. This is 19% more than my salary was.
As it turns out, even in 2020, I am performing at plus 41% salary and the outlook is promising year over year.
Even armed with 7 months of positive monthly stubs, my broker and underwriter refuse to use my newfound commissioned earnings as income due to being less than 2 years time and will only allow my lesser 2 year tax return income. (Still 31% DTI and well below the 46% or whatever is maxed FHA).
I didn’t realize commission was so complicated as I am not well versed in real estate. Shouldn’t this be one of the first things you are asked at pre-approval?
Anyway, I used your informative article and systematic feedback of readers comments to relieve some pent up insecurity.
We are still waiting on the “Go for close” with the set closing date of 9 days from now by contract. The only conditions we had were;
Stamped, signed, verified bank statements
Letter from employer explaining LOA for my wife. (Six months off from pregnancy and complications from September till April).
We have submitted these over a week ago and radio silence. Constant contact with LO but he doesn’t know either. They have in-house underwriting…..
Hope this finds you well!
P.S.
Wife is in excellent health after complication scare. Also, our only daughter from said pregnancy (3 boys previous) is doing magnificently.
Sincerely,
T Swan
Hi T Swan,
Your symptoms are what I experience sometimes as a mortgage professional these days! 🙂 I have no idea exactly what you’re going through and encourage you to speak directly with your mortgage professional (I’m assuming and hope you are).
1) the updated disclosure with the premium insurance – was that for your home owners insurance? I’m not sure what premium means? Often, we have to start with an estimate for home owners insurance and it’s updated once the lender receives an insurance binder from the insurance provider of your choice.
2) Buying a car is a much smaller transaction that takes a lot less time.
3) If your commission is guaranteed – it’s not a problem – the lender can use the base. But commission typically varies and is not guaranteed. Underwriters are looking for stability with income. Typically lenders want 2 years history when someone is paid commission or hourly where incomes can flex. I try to get verifications of employment when I’m working on preapprovals upfront to make sure we have the income as an underwriter may view it.
Congrats on your new addition! I hope everything works out for you and your family.