By having a general understanding of the home loan process you will be better prepared and have a much smoother and more enjoyable experience when purchasing your new home.
Below are 8 steps to understanding the home loan process.
Pre-qualification begins by completing a client profile online or a simple phone call. Information about your employment, income, expenses, funds available for down payment/closing costs and credit are reviewed to determine your purchase price range and loan programs best suited to your qualifications. You are encouraged to take the next step of pre-approval.
Pre-approval begins by completing a client profile online. Doing so gives your Mortgage Navigators associate the permission to verify the data provided in the pre-qualification step. You’ll be asked to provide certain documents to confirm your income, expenses, and funds available for closing. A credit report is ordered and if necessary third-party verifications are ordered to further confirm the details. Once this information is validated your file then is submitted for automated underwriting or in some cases forwarded to an underwriting team for manual review.
A price range is established, and various loan program and cost scenarios are presented and discussed in detail allowing you to choose the path that best fits your profile and financial goals.
Interest rates are based on your credit scores, the percentage of the loan to the value of the home, the loan size, the type of home you’re financing, and your debt to income ratios.
This is a great time to visit the Home buyer Do’s and Don’ts page.
The application is the beginning of the formal loan process once a property is selected. The information provided in the pre-approval step is updated as needed and compiled into an application package that contains all of the details and various Federal and State disclosures for signatures confirming that you accept the terms of the loan. As part of the application package the Loan Estimate lists the purchase price, loan amount, interest rate, and closing fees specific to the transaction. At this time you’re given the opportunity to lock-in to the day’s current interest rate or chose to float the rate. Floating the rate leaves the interest rate vulnerable to market movements, up or down and must be locked-in at least 5 days prior to your expected closing and potentially sooner if the loan will be subject to further underwriting.
If you haven’t already, please visit the Home buyer Do’s and Don’ts page.
The processing team re-validates the application information, collects any updates that may be necessary, orders your title commitment and appraisal, coordinates your home insurance to match the lender’s requirements and presents your file to the underwriting team for final review.
The underwriting team reviews and re-validates the application information to be sure everything is complete and conforms to the Agency requirements. It is common for an underwriter to ask for additional information to further support or update an area of the application. Assuming all checks and double checks were made prior to the underwriter review these items are typically minor and easily resolved. An underwriter runs a variety of reports and occasionally something shows up that requires additional documentation or explanation.
Conventional loans with less than a 20% down payment require mortgage insurance. In general mortgage insurance companies follow Agency guidelines however premiums are determined based on risk. As with interest rates credit scores, the percentage of the loan to the value of the home, type of home being financed, and your debt to income ratio will determine the risk and the premium. FHA loans also require mortgage insurance regardless of the down payment. VA loans are guaranteed by the Department of Veteran Affairs and have a guarantee fee. USDA loans are guaranteed by the US Department of Agriculture and also have a guarantee fee.
Congratulations! Your loan has been cleared for closing by the underwriting team. Your file is now sent to the closing team, final documents are prepared, and the preliminary Closing Disclosure is sent out for your review and signatures at least 3 days prior to your scheduled closing. The closing disclosure is also sent to the title company where adjustments are made per the purchase agreement for any pro-rations or other debits or credits listed and final figures are balanced. Your Mortgage Navigator associate will then go over the final figures and advise you to get a cashier’s check or setup a wire transfer for your closing.
At the closing, the title company represents the interests of the lender, collects your down payment money, notarizes all of the closing documents and disburses funds to the appropriate parties. This is the point where you celebrate being a Happy Homeowner and the transaction is considered closed.