The mortgage process actually begins with a preapproval effort. No matter where you go for your mortgage, you will be dealing with someone who is either a Loan Officer or a Loan Consultant.
The purpose of the Loan Officer or Loan Consultant is to determine if you can qualify for a mortgage, and on some level, what type of mortgage will work best for you. These individuals can assist, especially if you don’t know what type of mortgage plan you need or what you can afford. The Loan Consultant is not a salesperson, nor do they have any direct authority in how, or if, a mortgage will be approved. Their role is guiding the borrower through the process, and functioning as the borrower’s advocate. They work on the borrower’s behalf, not the lender’s.
The Loan Consultant will ask you questions regarding your credit, your income, and any plans you may have for the property you are either purchasing or refinancing. You answers to these questions will help them to develop a plan or direction. The Loan Consultant may determine that your chances for obtaining a mortgage are very slim or nonexistent. They will then explain why, and how you may correct or improve your borrowing profile.
However, if you’re a good candidate for a mortgage, the loan consultant will suggest moving forward to obtain a more formal preapproval for you. During this phase borrower’s will discover what type of mortgage they can qualify for, its pricing and terms, and the requirements needed in order for them to obtain final approval.
A formal preapproval through an actual lender, can typically be achieved in 24-48 hours. This requires the loan consultant to pull a tri-merged credit report from the three major credit bureaus. Since all credit bureaus assign a credit score (or what many people refer to as a FICO score), the loan consultant will be looking to see what the borrower’s middle or mid-score FICO is. For most borrowers, the 3 FICO scores assigned to their reports are varying numbers, so your mid-score FICO is typically the borrower’s qualifying score.
There are also two forms that are standard and universally used by all brokers and lenders in the mortgage field. The first is the Uniform Residential Loan Application (commonly referred to as the “1003”); and the second, shorter version, of this form is called the “1008.” The Loan Consultant will complete both of these forms for the borrower, and along with a copy of the borrower’s tri-merged credit report, will submit these three items to the lender(s) who would be most likely approve and fund the borrower’s mortgage.
A preapproval is usually valid for 30 days and no longer, although this can vary depending on the lender. The reason is that a borrower’s profile can change, with credit scores going up or down. A borrower’s employment situation may alter, or the market itself may fluctuate.
Lenders will then review the submitted information, and providing the borrowers meeting their guidelines, will then offer pricing (i.e. interest rates and terms) and conditions that need to be met, relative to lending the borrower the funds required. This submission process between broker and lender is how all brokers and lenders work together to fund mortgages.
After a preapproval has been obtained, a borrower who's going to purchase a home can begin the house hunt; knowing what price is affordable, what the monthly payments will be, and will have the confidence in purchasing as a preapproved buyer. Once a suitable or desirable property is located, the borrower then needs to secure a valid purchase contract on the property.
After the borrower has secured the purchase agreement or sales contract, it's important for the borrower to provide a copy of the contract to the loan consultant. The next step will be getting the property appraised.
Obtaining a satisfactory appraisal is an important step in getting a final approval for the mortgage. The property being purchased must appraise for at least the purchase price. If it does not, the borrower will have the option of cancelling the sale, renegotiating the purchase price, or if the borrower wishes to proceed with the purchase at the agreed price, will have to come up with the difference in the purchase price and the appraised value.
While an appraisal is being performed, the lender, with the assistance of the loan consultant and the loan processor, is undertaking what is sometimes called, "due diligence". Things like the borrower's employment, rent or mortgage history, sources of assets, and so on, are being verified by the lender. The information, which the borrower had provided to the loan consultant during application, is now being verified.
The process is almost at its final stage. Usually, the appraisal is the last step before the borrower's mortgage file can be completed by the loan consultant and processor, and then submitted to the lender's final underwriting review for approval. The lender's underwriter or underwriting team will usually complete this process in 24-48 hours. They will review the loan to see if all of the conditions have been satisfied. After which, assuming final approval is granted, the mortgage will move from underwriting to the lender's scheduling department for closing and funding.
Generally, the "closing documents" which are all the many papers a borrower signs at closing, are generated within 24 hours of the loan being scheduled for closing. These papers are usually e-mailed to the title company or escrow agency that is handling the closing. The borrower is then contacted by a title or escrow officer for a signing appointment. At this point, the process draws to a close, and the borrower has now officially purchased or refinanced a home.