Loan Application Timeline
Whether it is the purchase of a new home for the
first time or if you are the veteran home buyer, it is your goal to get
through the mortgage loan process easily while still getting the best
deal out there. In order to do so, it is of the utmost importance that
you understand the steps that are involved throughout the process. The
better you understand the process, the less problems you will incur and
the easier it will be for you. The time frame from start to finish will
vary depending upon the loan type, the borrower’s history, any
contingencies in the contract and the investor involved with the
underwriting. The complete mortgage process takes about 21-45 days.
Pre-Purchase
(Occurs before the loan process begins)
Before one begins shopping for a home, you should
have a fairly solid idea of how large of a loan you will qualify
for—i.e. how much you can borrow. The first step, therefore, is known as
pre-qualifying.
It is essential to explore and discover exactly
what are your needs. Are you on a fixed budget, for example, and only
want a $600 a month payment? Are you looking for programs that will
enable you to build up equity quickly? Or, are you looking to get the
most home for your financial and credit situation?
Once this is established, the agent and buyer begin
searching for a suitable home. Once found, the agent negotiates a
contract on the home and you move to the next step—the application
process.
Step 1. The Application
(Occurs between days 1 and 5)
The buyer (now called “borrower”) completes a
mortgage loan application with me. We sit down and begin the foundation
of your loan file. Within three days of application, the borrower
receives a Truth-in-Lending disclosure and a Good Faith Estimate which
itemizes the approximate costs associated with applying for a loan.
Step 2. Opening the File
(Occurs between 3 and 5 days)
Assembling the loan package with all of the
required documents is the most time-consuming step throughout the
mortgage loan process. All of the information provided on the
application must be verified and supported by documentation.
Once the file is turned in, my loan processor
orders a property appraisal and a credit report, mails out Verifications
of Employment and Deposit (VOEs and VODs), order the preliminary title
work and gather/prepare the other documents that will be necessary to
complete the loan package.
VOE: Employers are asked to verify for each
borrower the last two years of employment history and gross income, and
state the probability of continued employment.
VOD: Financial institutions are asked to verify the
existence of each borrower’s funds. Typically, the borrower must have at
least 3%-5% of his/her own funds for the down payment, sufficient funds
to pay for closing costs, and 2 months’ cash reserves of the principal,
interest, taxes, insurance (PITI) payment. All funds must have been on
deposit, usually, for 90 days.
Step 3. Processing
(Occurs between days 5 and 25)
The processor reviews the credit report and
verifies the borrower’s debt and payment histories as VOEs and VODs are
returned. If there are any late payments, collections or judgments shown
on the credit report, a written explanation is required from the
borrower. Also, the processor reviews the appraisal and checks to see if
there are any property issues that may require additional comment by the
appraiser. Finally, the processor packages the loan in a pre-determined
order and sends it off for underwriting approval.
It is vital that when you are asked to provide a
document, you do so as quickly as possible. Failure to do so often leads
to delays and having to push closings beyond the contractual date.
During this step, it is their chief responsibility
to “pre-underwrite” the file. Pre-underwriting is a proactive step where
they not only shuffle the paperwork but examine the file as an
underwriter would in order to ensure the success of a file when it is
submitted for approval.
Step 4. Underwriting
(Occurs between days 15 and 25)
The approval process is known as underwriting.
Throughout this process, three things must be established before an
approval is given:
1) the borrower’s ability to repay the mortgage
loan
2) the borrower’s willingness to repay the loan
3) sufficient collateral (i.e. the property) to
secure against the loan
This is typically established by looking at the
past two year’s of the client’s lives (residency information, employment
history and credit history) in addition to looking in the foreseeable
future.
It is important to remember that the approval or
denial of a file is usually determined by someone who has never met the
borrower. The decision is made based upon the information and
documentation in the file.
Step 5. Mortgage Insurance Underwriting
(Occurs between days 15 and 27)
If the borrower is putting less than 20% down on
the home he/she is purchasing, the loan must be submitted to a private
mortgage insurance company. The mortgage insurance underwriter reviews
the file much like the aforementioned step. If approved, the okay is
given to proceed to the next step. However, if more information is
required to make an underwriting decision, the loan is put into suspense
and additional information is requested from the borrower.
Step 6. Pre-Closing
(Occurs between days 16 and 27)
Once the loan is approved, any and all approval
contingencies must be met. In addition, the rate is locked (if not done
so by now) and the closing documents are ordered and sent to the
title/escrow company. Finally, the closing is re-affirmed between the
borrower and the title/escrow company.
Step 7. Closing
(Occurs between days 21 and 45)
Once the closing is scheduled, the borrower orders
homeowner’s insurance (hazard insurance) and brings to the title/escrow
company a certified check for the remaining closing costs/down payment.
A significant part of your meeting with the escrow agent on the day of
closing will be signing various documents.
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