Applying for a mortgage loan can be overwhelming. We completely understand! Here is a breakdown of the application process.
1. Fill out application
• You can start the application process online, over the phone or in person. You will fill out some personal questions before being directed to a loan officer. If you have contacted a real estate agent, you may be referred to a loan officer before filling out an application. If that’s the case, your loan officer can assist you with your application.
2. Speak to loan officer
• Once you’ve completed an application, or even during the application completion, you’ll speak to a loan officer (LO) about your homeownership goals including your budget, how much you have saved to use as a down payment and cover closing costs, and how to make sure your mortgage fits your needs.
• For example, if you are living in a city and want to move in a few years, your goals may be different from someone who wants to stay in the suburbs for a long time.
• During this phase, you’ll receive disclosures to sign and return to your loan officer in order to start processing your loan. It’s a substantial set of documents – don’t be alarmed! These documents inform you about legal information regarding the obtaining of a mortgage as well as give the lender authorization to access your non-public personal information.
• At some point between talking to the LO and closing, you will need to lock in your interest rate. Your LO will guide you in making a decision about the best day to lock in your rate, which is determined by a number of factors including proximity to closing date and what the stock and bond markets are doing at the time. Once the rate is locked, it won’t change unless you request a change or you choose another program that better fits your needs.
• For example, you may decide you want a different down payment and may need a new program to fit your new budget.
3. Loan Processing
• This part of the application is called “processing” because there it truly is a process. It begins with an initial request for a substantial amount of financial information including bank statements, pay stubs, tax returns, W2s, etc. Sometimes, as your processor analyzes your information, there may be follow up questions that require clarification.
• The goal of collecting all of this information and asking for clarification is to meet a set of requirements in order to provide your mortgage. Your lender has to prove to investors that you meet those requirements and that they did their due diligence.
4. Loan Underwriting
• During this phase, the underwriter makes sure your documentation and further clarifications meet the investor requirements. Just as with processing, the underwriter may need further clarification and other information to understand your unique situation. Once your file is complete and your lender has confirmed all requirements are met for qualification, you move on to closing.
5. Preparing for Closing
• Your lender will tell you how much money you need to bring to closing. You will receive an itemization of costs, 3 days in advance of your closing appointment. You can either wire the funds (before, on or after the closing date, depending on the state) to the settlement agent or bring in a cashier’s check. The funds must be immediately available to the settlement agent. If you use a cashier’s check, you make it to yourself and endorse it to the settlement agent in order to protect your money in case something goes wrong at the last minute.
• Your closing date will then be scheduled. Sometimes, you close at the same time and location as the person selling the property, which gives you a chance to talk to the seller about the home, neighborhood, etc. If your schedules don’t align, you may never meet the seller.
• At closing, you sign documents with a notary. Closing can take place in an office, your home, or even a Starbucks. Sometimes, your LO attends closing as well.
• Your lender then reviews your documents to make sure they were completed correctly.
• In a dry fund state, the lender reviews the documents. If anything is missing or wrong, they will have you fix the issue with the help of the settlement agent. There may be a few days before the settlement agent disburses the funds and you get the keys to your new house.
• In a wet fund state, the lender does a brief review of your documents, the settlement agent disburses the funds, and you get the keys to your new house all on the same day. In those cases, the lender reviews your documents after you already move in to the house. They might identify something that was missed or incorrect, and will have you fix it with the help of the settlement agent after the fact.
7. First payment
• Typically, your first payment is not due until the 1st day of the 2nd month after closing.
• For example, if you close on April 15, your first payment is due June 1. This can be helpful to renters by giving them an ‘extra’ month without a housing payment.