The Mortgage Process
The mortgage process is a series of steps that allows the lender to make an intelligent decision about lending their funds to you. These steps consist of interviewing and qualification, processing, underwriting, and closing.
Your loan officer and processor are responsible for your loan application from the beginning of the application through funding of the loan. They will keep you up-to-date throughout the whole process on the status of your loan and the anticipated closing date, ask you for additional information that may be needed to speed things along, and answer any questions you may have.
Interviewing and Qualification
Upon receipt of some introductory information from applicants by fax, telephone, email, or in person, your loan officer will begin by going through some preliminary qualification with you that allows us to determine your loan needs. We will consult with you, answer your questions, and guide you toward your financial objective - to find the best loan.
Qualification involves the determination of two ratios:
- Housing-to-income ratio: This compares your entire monthly housing expenses to your monthly income.
- Total debt-to-income ratio: This compares all your monthly debt payments (credit cards, car payments, housing debt, etc.) to your monthly income.
This is a very important step that allows your loan officer to determine what types of available mortgage loan programs meet your needs. After your preliminary qualification, a loan application is filled out which provides details about you and your financial position along with information about the subject property. The information you will be providing can be very personal, which may make you feel uncomfortable at times; however, it is crucial that you give accurate and truthful information throughout the whole process. This will speed your application along and help eliminate the chance of any unexpected "surprises" that could cause a delay or keep you from getting your mortgage loan.
Along with the application, you may be asked to provide other supporting documentation. This information includes such documents as: W-2s, tax returns, current pay stubs, and bank statements, to name a few.
In addition, your loan officer will provide you with a Good Faith Estimate of the settlement charges associated with closing your loan, a Truth in Lending disclosure which details what your payments will be along with the corresponding APR, and a settlement booklet that describes in greater detail the settlement process and the various fees associated with a mortgage loan. You may also be asked to sign documents for verifications, which will be needed during the processing of the loan.
Processing
During processing, your loan file is examined to ensure that all information is complete, accurate, and meets marketing requirements. Verifications, appraisals, credit reports, and other necessary documents will be ordered at this time. Automated underwriting decisions (through FNMA or FHLMC) may be made early in the process depending on your loan program. These automated underwriting decisions are based on the information given by the borrowers on the initial application as well as the applicant's credit report. The information given is later verified (through pay stubs, W-2s, tax returns, bank statements, etc.). Once the loan file is complete and all the information is documented, the processor will turn the file over to an underwriter.
Underwriting
Underwriting involves the evaluation of all the documents that make up the file to determine if the loan should be approved or denied based on the factual information presented. All of your loan documents will be verified and reviewed for completeness, accuracy, and legibility.
An underwriter will review your loan in terms of four important factors: collateral, capacity, character, and capital.
- Collateral: This refers to evaluating an estimate of the property's value and the property's physical condition, which provides a basis for the lender to establish the maximum loan amount that the property can secure.
- Capacity: This refers to the financial resources you have available and your ability to make the monthly housing payments. Qualifying ratios are calculated to support the loan file data and meet certain requirements.
- Character: This is based on the information from your credit report, which provides a history of credit performance regarding payments. This acts as a measurement of your motivation to make monthly mortgage payments. If you have a history of bad credit, it is not a basis for automatic denial. You may have corrected the problem or may need to do so before loan closing can occur. Your loan officer will make you aware of any problems and can offer you possible solutions. Remember to be "up-front" to eliminate delays!
- Capital: This refers to the liquid assets which you have available for the down payment of your loan (if necessary), and to meet closing costs.
After all underwriting factors have been carefully evaluated; the underwriter will make a decision to approve or deny the loan you have requested. If approved, the loan package is signed, dated, and sent off for closing. Your loan officer will inform you of the decision and confirm it with a written loan commitment. If your loan is denied, you will be informed in writing.
Closing
This is the final step to obtaining your mortgage loan. After your loan is approved and title insurance and hazard insurance have been reviewed and approved, closing documents are prepared and sent to the title company or attorney for closing. At closing, you will sign the mortgage, note and related documents and funds will be disbursed. If you are purchasing a home, the title of the property passes from the seller to the buyer. At the same time, you will be making a legal obligation to repay the debt secured by the mortgage.
The total time from the application to funding will vary for different lenders and the types of loans they offer. Typically, if the process goes smoothly, you will have your loan within approximately 3-6 weeks.