Mortgage Loan Process Explained

For those who are first time home buyers the mortgage loan process can be scary and maybe a bit intimidating. And even if this isn’t your first rodeo, the process can still be overwhelming and stressful.

The truth is there is a lot of paperwork and moving parts to the whole thing. The lender will be looking at and reviewing your finances and personal information, and with that comes a degree of vulnerability and a whole host of questions along with it.

One might wonder what information must be disclosed?

What information will be looked at and considered?

What is the length of time for loan documentation?

What will the loan estimate be?

Are there any hidden fees?

When is the first payment?

With all these questions swirling in the loan applicant’s mind, knowing the exact process can do much to alleviate these concerns. We hope to do just that by sharing what happens in the time between when your financial information is submitted and the loan Is approved and your dream home is purchased!
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The Process

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Pre-approval‍

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The first step in the process is to find out how much lenders are willing to lend you to purchase a home.

How this works is the loan applicant submits financial information to the lender who will consider specific criteria to determine how much you can borrow. While each lender is different, they will definitely look your debt, income, and credit score.  

Depending on the criteria and if it is met, the lender will then provide a letter detailing the estimated loan amount they have pre-approved you for. With this information, you now have an idea of the budget for your future home.

Keep in mind that pre-approval is not a binding agreement between you and the lender. The lender is not required to approve this mortgage amount in the end and if something comes up, this can change. But in general, most loan applicants will be approved unless something unexpected arises.

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Looking for your future home!

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This is the more exciting part of the process – house hunting!

Now armed with a general idea of your available budget, you can begin shopping around for potential houses.

The pre-approval process is recommended before this step because real estate agents and sellers want to know you are serious about buying a home and able to afford one.

Having the pre-approval letter from your MLO is proof of that so make sure to do step 1 before coming to step 2 even if it’s tempting to start looking at houses right away.

Once you find the perfect home, make an offer. While the hope is that the seller accepts your offer right away, in reality other buyers might also be making offers. Therefore, it might be a few days before you hear back but patience is key in the home-buying process.

Once the seller accepts your offer, then comes the loan application.

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Loan Application

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While the loan application sounds daunting, it’s really not. You don’t have to gather any necessary documentation because you’ve already done that in the pre-approval stage!

Your mortgage lender has all of the necessary documentation already and simply needs you to fill out a very straightforward application form that asks for additional information about the desired home for purchase and some more information about you. ‍

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Processing the Mortgage

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Once you’ve submitted your loan application and have a purchase agreement, the next step goes further into the approval process.
The processor already has your pre-approval information and will review that along with some additional financial documents and information on the home for purchase.

The goal here is to prepare everything for underwriting, which is the next step in the process.

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Underwriting

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Many would say this is the most important step in the entire home-buying process. This is the make-or-break moment when the lender makes the final determination of whether or not your loan is approved.

In making this determination, what they are really asking is whether they believe you can back your loan. They make this decision by looking at a number of factors, but the most important are income, debt, and borrowing history.

They also want to know whether the property is worth the loan amount so an appraiser will make an assessment on the property to verify this. The point of this is because the house is the loan collateral.

As mentioned earlier, patience is key to the process and even more so at this step. If the lender is busy  or the underwriter is less experienced, this process may take longer.

While there is no set time for how long underwriting takes, home buyers can expect days or weeks before this step is complete. This is the final approval stage so more diligence is applied here and you won’t receive your loan unless your loan application is approved, which is done in this stage.

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Closing ‍

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Now that your loan application has been approved and the underwriter has completed the process, home buyers move to the final step in the process – closing on the home of their dreams! Yay!

Together, the home buyer and seller will prepare and sign any necessary documents that are to be sent to the title company, who will be making the official close on the sale of the home.

Right before closing, the home buyer will be given a Closing Disclosure that provides a snapshot overview of all the important details of their loan, such as loan terms, monthly payments, fees, and other closing costs.

The last step then is for the home buyer to pay the fees and sign all the paperwork and that’s it – your dream home is ready for move-in! Congratulations on your very first home purchase!

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