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General Mortgage Loan Steps

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Overview of Loan Process

Finding and purchasing a home can be exciting.  If this is your first time, navigating the loan process may be overwhelming and daunting.  Having an idea of the loan process can alleviate the stress of buying and financing your home.  More importantly, it will allow you to be informed to the appropriate decisions.  While there are some variations with the loan process among lenders, the following are basic steps in the process:

  1. Pre-Qualification – Based on the information you provided, the lender will determine if you fit the basic financial criteria for a home loan, and if so, how much mortgage you can reasonably afford for the home.
  2. Mortgage Programs and Rates – In order to properly analyze a mortgage program, you need to think about how long you plan to keep the house and loan.  Depending on your situation, there are various suitable mortgage programs that are cost-effective and help you make an informed decision regarding interest rates, points, and fees.
  3. Submit Your Loan Application – Submitting a loan application is the actual beginning of the loan process.  At this process, the lender will have you complete a full application and request documentation relating to your income, debts, and assets.  Make sure to respond promptly to keep your application moving forward and avoid any delay.
  4. Loan Estimate – A loan estimate is provided within 3 days of your fully completed loan application.  The three-page form provides you important details about the loan you have requested.  It includes information regarding the estimated costs of taxes and insurance, and how the interest rate and payments may change in the future.  It also indicates if the loan has special features that you will want to be aware of such as prepayment penalty or increases to the mortgage loan balance even if payments are made on time, i.e. negative amortization.  The loan estimate does not mean that your loan has been approved or denied.  The estimate shows you what loan terms the lender can offer you if you decide to move forward with the loan.
  5. Intent to Proceed – After you receive and review the Loan Estimate, it is up to you to decide whether or not to proceed with the loan.  If you decide not to proceed with the loan, you generally do not need to do anything further.  If you intend to proceed with the loan, then you must notify the lender in writing or by phone stating that you want to move forward with the loan application.  All lenders are required to honor the terms of the Loan Estimate for 10 business days.  Please be cognizant of the 10-day deadline.  If you decide to move forward after the 10-day deadline, the lender may have to revise the terms and estimated costs because of the market conditions and provide you with a revised Loan Estimate.
  6. Processing – Once the loan application has been submitted, the processing of the loan will begin.  Credit report, appraisal, title report, and other related documents will be ordered.  Your information on the loan application will be verified.  If there are any judgements or credit deficiencies the lender will require a written explanation.  Once this process is completed, the entire mortgage package is then submitted to the lender.
  7. Required Documents – Once you have completed the loan application, received the loan estimate, and indicated your intent to proceed, the lender will request documents from you in order to process your loan.
  8. Credit Reports – Part of the loan process is pulling your credit reports so that the lender may understand your credit history.  The reports will allow the lender to look at items such as past delinquencies, derogatory payment behavior, current debt levels, length of credit history, types of credit and number of inquiries.  A credit score between 800 and 850 is considered exceptional.  A credit score between 740 and 799 is considered very good.  Applicants whose credit scores fall between 670 and 739 are considered good.  Anything below 669 is considered fair to poor.  You can be better prepared if you get a copy of your credit report before you apply for a loan.  This way, you can take steps to correct any negatives before submitting a loan application.
  9. Appraisal – During the loan process, the lender will have the property appraised.  An appraisal of real estate is the valuation of the rights of ownership.
  10. Underwriting – Once the processor completes the loan package with all verification and documentation, the underwriter sends the file to the lender. The underwriter is responsible for determining whether the package is deemed an acceptable loan.  If more information is needed, the loan is put into suspense and you have to supply the requested information and documentation.  If the loan is acceptable as submitted, the loan is put into an approved status.
  11. Closing Disclosure – The Closing Disclosure is a 5-page form that provides final details about the loan you have selected.  It generally includes the loan terms, your projected monthly payments, and how much you will pay in fees and other costs to get your mortgage.  The lender is required by law to give you the Closing Disclosure at least 3 business days before you close on your mortgage loan.  The time frame will allow you to compare our final terms and costs to those estimated in the Loan Estimate that you previously received from the lender.  It also allows you to ask questions before you close the loan.
  12. Closing – Once the loan is approved, the lender will schedule for you to sign the loan documentation, and subsequently fund the loan after everything is finalized.  At the closing, be sure to read all the documents you receive and ask any questions you have about the terms of the agreement.  After you sign the loan documentation and accept the terms of the agreement, you cannot reverse the process or unlock the door.

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