The first step of the mortgage is also the first step of the home purchase process as a whole…obtaining your pre approval. This is discussed in the Preparation post of the Home Buyer’s Handbook.
Once you find the right home, have an accepted offer, and the contract is bottomlined, I distribute the executed contract and supporting documentation to several involved parties including your loan consultant. It is important that you touch base with your lender right away after you come under contract for your new home, if they do not promptly reach out to you first.
From this point forward you will be working very closely with your loan consultant as they prepare your mortgage file for loan approval. It is important that you provide the required documentation, payments and signatures promptly in order to keep timing on track to satisfy the contract closing date. In many cases, when the ball is in the buyer’s court to complete an activity, the process is stalled and can not move forward into the next steps until their task is done.
The mortgage process is composed of a few key and notable steps:
Application
The application is the official beginning of the property specific mortgage process. Much of your personal information will already have been provided to the lender during the pre approval process and will then be submitted along with specifics of the property you are purchasing and the contract terms that you agreed to into an official loan application. This is typically when your interest rate will be locked for a specified and appropriate number of days to fit the needs of the transaction. Upon application the buyer will be provided with loan disclosures that show estimated costs. It is very important that these disclosures be reviewed and signed promptly.
Appraisal
The appraisal determines the value of the home to which the lender is willing to lend. It is ordered by the lender and paid for by the buyer up front. The buyer is not present for the appraisal, but they will be provided the appraisal report after it is completed.
Some lenders may be eager to get an appraisal ordered right away upon execution of contract, but we suggest that the appraisal be ordered AFTER the home inspection is conducted and any resulting negotiations are completed. This is to save you from spending money on the appraisal if there are any deal breakers uncovered from the inspection.
Once the appraisal is ordered, you will be required to submit payment for it. Again, please be prompt in doing so as the appraisal can not actually be scheduled and completed until payment is received.
Once the appraisal is completed and report is received by the lender, the loan consultant will notify the buyer of the value and any repairs that may be required to satisfy FHA, VA, RD requirements. You are also entitled to received a copy of the appraisal report. If the lender doesn’t do so automatically, be sure to inquire and request.
If the appraisal comes in at or above the purchase price, all is well. If it comes in anywhere below purchase price, we enter a new round of negotiations between buyer and seller in regards to the purchase price. If parties do not come to acceptable terms, the contract can become void. This point is also when an appraisal bridge/guarantee would come into effect, if one was included in your offer. It’s key to note that a buyer is certainly able to purchase for more than appraised value, however, the lender will only provide a loan up to the appraised value. That means that any cost beyond that value would need to be provided as additional funds brought to closing from the buyer.
Underwriting
Your entire loan application, supporting documents and appraisal will be submitted by your loan consultant to their lender’s team of underwriters. They are the ones that do a deep dive review of your file and give the approval for the loan. During their review, it is common that additional documentation may be requested and certain conditions be met before such approval is reached. As always, please get these tasked completed or documents returned to your loan consultant promptly to keep your file moving along and on target to meet contract deadlines.
Approval/Clear To Close
Once the underwriters give their approval and letter of commitment for your file, you will receive a preliminary closing disclosure and a closing date can be scheduled. It’s important to note that the closing date must occur 3 days following the buyer’s acknowledgment of the discloses (TRID compliance), so it’s important to do so quickly to avoid delays in your closing. Once a closing date is established, the final closing costs and disclosures can be calculated by the lender and title company using that date for prorations. Once these final figures are determined, funds due for closing will be reviewed with you by your loan consultant and instructions given in regards to the form of payment to bring/arrange.
PLEASE BE CAUTIOUS!! wire fraud is on the rise. If you get any communication instructing you to wire funds for closing, even if it looks like it is coming from the title company or other involved party to your transaction, please let myself and your lender know immediately to verify authenticity before doing anything!
If you plan or need to wire funds please work closely and directly (via voice conversation) with your lender to arrange.
See The Closing Post of the Home Buyer’s Handbook for more details regarding the closing.
