This is a step-by-step outline of the mortgage loan process. This is the same process we use here at West-Cal Mortgage to provide borrowers with the best possible loan programs.
An initial phone call with a loan officer is made to review and discuss the borrowers needs and loan options. Knowledgeable mortgage brokers like Dan Eichhorn at West-Cal Mortgage can recommend mortgage programs that fit best with the borrowers situation. After collecting debt and income information from the borrower, the loan officer determines how much of a loan the borrower qualifies for.
There are two aspects mortgage companies look at for pre-qualification: borrowers ability to repay the loan and borrowers willingness to repay the loan. Ability is determined based on current employment and total income. Willingness is determined by looking at how the property will be used (for example, investment property vs home residence) and based on history of rental payments and/or borrower credit report history of the payment of previous debts.
Loan applications usually happen 1-5 days into the loan process. The borrower provides all necessary documentation to the mortgage broker. When going over mortgage program options, an array of possible closing costs and fees will be reviewed and confirmed by the Loan Estimate (LE). These documents are delivered to the borrower within three days of submitting the loan application.
3. Reviewing Loan Estimate (LE)
The LE is a three-page form delivered to the borrower within three days after they apply. It provides the borrower with estimated interest rate, monthly payment, closing costs, taxes and insurance, possible future changes in interest rate or payments. It also includes unique aspects of the loan, such as mortgage loan balance increases even when payments are paid on time (negative amortization), or penalties for paying it off early (prepayment penalty).
The LE shows the borrower the terms of the loan available to them if they decide to proceed. It must be signed by the borrower prior to ordering an appraisal.
4. Intent to Proceed
Borrowers that decide to proceed with the application process must inform the mortgage broker of their intentions by signing the Intent to Proceed.
5. Pre-Approval Process
This process includes gathering all applicable borrower documents needed for loan approval. In the case of using an automated approval system, the pre-approval process consists of the processor inputting the borrowers data into the Fannie Mae Desktop Underwriter (DU). This system establishes underwriting criteria and borrower documentation needed to submit to the underwriter for approval.
During processing, the credit report, appraisal, and title report are ordered by the processor. Accuracy of information on the application is confirmed. A written explanation for credit derogatories must be provided. The processor checks title and appraisal reports for any problems with the property that need to be looked into. The mortgage package is assembled and prepared to be submitted to the lender.
7. Credit Reports
Credit reports determine the credit risk of a mortgage applicant. A credit report has five information categories: inquiries, employment information, credit information, public record information, and identifying information. Credit scores help guide applications toward relevant loan options.
The FICO score is the most common credit score determinant. The calculation includes five elements: 35% based on payment history, 30% based on outstanding debt, 15% based on duration of credit history, 10% based on search for new credit, and 10% based on types of credit possessed.
An “A+” borrower has a score of 720 to 850. These borrowers are put through an automated basic computerized underwriting system and their underwriting approval is completed within a few minutes. “A+” borrowers qualify for quick loan closing and the lowest interest rates.
An “A” borrower has a score of 680 to 719. Underwriters may request additional documentation from them before final approval. “A” borrowers may have slightly higher interest rates than “A+” borrowers.
An “A-” borrower has a score of 620 to 679. Underwriters may request additional documentation from them before final approval. “A-” borrowers may have slightly higher interest rates than “A” borrowers.
A “sub-prime” borrower has a score of less than 620. They have less ideal rates available to them and experience the lengthiest process for both finding the best interest rate and closing the loan. These loans are usually taken by sub-prime lenders with high interest rates and are often Adjustable Rate mortgages.
8. Order Appraisal
A real estate appraisal determines the financial worth of the rights of ownership. Before the appraiser estimates the value, a large amount of data gathering and research must take place. In some cases, the Fannie Mae DU approval will waive the appraisal requirement. Appraisal must be ordered by an independent Appraisal Management Company (AMC) who assigns and coordinates the appraisal order directly with an independent appraiser.
9. Submit Loan to Underwriter for Approval
The underwriter decides if the finished loan package is satisfactory. If more information is necessary, the loan is designated as “suspense”. The borrower will be asked for more information (underwriter conditions will be listed on the loan approval). If the loan submission is satisfactory, it is designated as “approved”. The underwriter usually will have some conditions on the approval that the borrower must provide.
10. Appraisal Received and Signed Off by Lender
11. Closing Disclosure (CD) Sent Out by Lender
The CD is a five-page document explaining your chosen mortgage loan. It provides loan terms, projected monthly payments, costs (such as closing costs), and other fees. The CD is legally required to be delivered to the borrower at least three business days before final loan documents can be signed. Borrower acknowledgement is required.
12. Final Loan Documents Prepared and Sent to Title Company
The borrowers complete loan file is sent to the closing and funding department after the singed loan documents are returned to the lender. The lenders closing department does the final review of all documents and any outstanding conditions and approves the wire request to fund the loan.
The title company records the deed of trust and the fun begins! After recording, final settlement costs on the HUD-1 Settlement Form are printed by the title company.
14. Happy Homeowner Receives Keys from the Realtor and Moves into their New Home!
A mortgage loan usually takes around 14-30 days to close. However, automated underwriting can make this process quicker.