The Loan Process, in Summation

It has come to my attention over the last year or so that most people actually have no idea what takes place from womb to tomb (application to funding) in a mortgage transaction. Most real estate agents have a general idea, but still think we hold all the keys to the puzzle when things don't go as planned regarding time lines. Therefore I shall give a brief rundown off the entire process for some clarity to those in the business, or those thinking of purchasing/refinancing property in the near future. Here goes:

1. Application (or Pre Qualification Stage): At this time a loan officer will collect information from an applicant in order to pre qualify them for a home loan. This is an initial glance, or birds eye view, of someones ability to get financed. Usually credit is pulled and reviewed, and income and asset information is reviewed verbally. This allows us to get a look at an estimate of the buyer/refinancer's debt to income ratio's. Credit and debt ratio (DTI) are the two most important pieces to loan approvals these days. If the credit and verbal debt ratio all check out, a pre qualification can be issued. WARNING: IF YOU WANT A PRE APPROVAL, YOU BETTER HAVE YOUR W2'S AND PAYCHECK STUBS FOR VERIFICATION.

2. Preliminary Good Faith Estimate/Fee Worksheet: At this point we can issue a prelim Fee Worksheet that will show borrowers the current market interest rates, and fees that they would incur if the transaction were closing, or being locked, on that day. These are subject to change based on the market, so buyers don't start railing your loan officers at this point because it will do you no good. If you are not in a position to lock, it is not a time to discuss interest rates. If doing a refinance, you will get a legally binding GFE and it IS the time to discuss.

3. Home shopping (for purchasers): Have fun! When you think you have a home in mind, call your loan officer to get an estimate of the payment for the home, closing costs, etc. Get a list of documents you will need to gather for the loan processing so you can start collecting them.

4. Home under contract: THE DAY you get a home under contract call your loan officer to lock in the interest rate. They may require that you send in all of your application verifications prior to (W2's, paychecks, bank statements, etc.) so get those ready.

5. Once the contract is received by the loan officer it is thoroughly reviewed. Any nuances (seller concessions, non realty addendum's, survey costs) are added to the loan application to get it true and correct. The loan officer will then analyze your paycheck stubs (looking for average monthly income based on year to date earnings, whether you are commission, etc.) analyze bank statements for unusual deposits, verifying you have the needed cash to close, etc. Once everything checks out the loan is ready for processing. That is where the fun begins!

6. Processing: This is when the appraisal gets ordered (provided the home has passed inspection), survey gets ordered, and title gets opened. It typically takes about 7 business days to get all of these items back. In the meantime the loan is submitted to the underwriting department for review against the investor (bank) guidelines. Turn around times are always changing so this can take a day, or a week. As we move into June it will take longer thanks to the influx of tax credit contracts trying to close.

7. Underwriting: Once the file is received in underwriting it goes in line. It will not be looked at until the files in front of it have been reviewed. Get with you loan officer to confirm turn times. The underwriter will review your file and either clear the file to close (if they have appraisal and title) or issue an approval with conditions. The conditions on the approval can be small items, or very large, deal killing items. I will get into this in a separate post.

8. Processing: At this point the processing team will gather all of the conditions on the approval and resubmit to underwriting. However long it takes you to gather the conditions will effect how soon we can close your loan. Once we have them, it's back up to underwriting, waiting on the updated turn times to come and go.

9. Clear to close: The underwriters have cleared the loan for closing. Documents still have to be ordered, prepared, reviewed, sent to title, HUD's balanced, etc.

That is a VERY quick summary. Depending on turn times and how handy you as a borrower have all of your documents, can directly impact how long it takes for a file to get to closing. You may have got your loan officer everything they needed 4 days ago, but if turn times are 5 days in underwriting, you will be waiting one more day. I know this was a very long blog post, and they typically will not be that long. I will take the next couple of weeks to breakdown the entire process step by step. Please call me with any questions!