Home Loan Closing on Purchase and Refinance Transactions
This article covers the home loan closing on purchase and refinance transactions:
The home loan closing is the final step of the overall mortgage loan process. The closing is where ownership changes hands between home buyer and seller. In this article, we will cover the following topic:
- The mortgage process leading to the home loan closing
- The road to the clear to close
- The mortgage process from the role of the loan officer, processor, and underwriter
- The importance of gathering complete updated documents
- The home loan closing
The pre-approval stage of the mortgage process is the most important. The mortgage processor plays an important role in having a smooth mortgage process. As long as the borrower has been properly qualified, there should be no reason why every file should not close on time.
The Art of a Stressfree Home Loan Closing
The home loan closing is supposed to be an exciting day for everyone. The home buyer is officially the owner of the home and gets their keys. The seller gets their money. Both the loan officer and real estate agent get paid their commission.
The road to the home loan closing often is stressful. However, the road process to the home loan closing does not have to be stressful. A home loan closing should never get delayed. All closings should close on time.
A Home Loan Closing is the finish line in the mortgage process. In order for a home closing to take place, the mortgage underwriter needs to issue a Clear To Close :
What is a Clear to Close
A Clear To Close is the following:
- The mortgage underwriter has reviewed all of the conditions on conditional loan approval.
- The underwriter has signed off on the loan.
- The closing docs are ready to be sent out to the title company.
- The mortgage company is ready to wire the funds for the home loan closing to the title company.
The Home Loan Closing, again, is the finish line of the mortgage process. It is at the home loan closing where the title changes hands from seller to buyer. Also, funds are dispersed. Once the docs are signed and funds are exchanged, the keys are handed over to buyers.
Steps Leading to Home Loan Closing
To understand the steps leading to the Home Loan Closing, borrowers need to understand the steps of the mortgage process :
Borrower first consults with a loan officer:
- The loan officer will have the borrower complete a 4-page mortgage loan application called 1003
- Loan Officers runs the credit
- Makes sure the borrower qualifies with the right credit scores, review credit history, review assets, liabilities, run automated underwriting system
The loan officer qualifies the borrower.
- Makes sure borrower meets the mandatory waiting period after bankruptcy, foreclosure, short sale, or deed in lieu of foreclosure
- Makes sure there are no credit disputes
Loan officer issues pre-approval.
- The pre-approval stage is the most important part of the loan approval process
- If the borrower has been properly qualified, there is no reason why the home loan should not close
The borrower takes pre-approval and hires a real estate agent:
- Starts shopping for his or her dream home
Borrower shops for home:
- Makes offer
- Gets an executed real estate purchase contract
- Most closing takes 30 to 45 days to close
There are contingencies on home purchase contracts such as home inspection and finance contingencies.
Steps in the Mortgage Process Leading to Closing
The mortgage process starts once the home buyer submits the executed home purchase contract to the loan officer:
- The loan officer sends out disclosures to the borrower for signature
- The file gets assigned to the mortgage processor
- Processor collects mortgage documents
- Mortgage processor and/or loan officer orders a home appraisal
- The processor submits the file to the mortgage underwriter
The underwriter issues conditional loan approval.
The Importance of Updated Documents
It is the job of the processor to get updated recent documents. Expired or older documents will get kicked back by the underwriter.
Examples of conditions include VOE, VOR, VOD, and updated paycheck stubs and updated documents as well as additional documents:
- The processor quarterbacks with the loan officer and the borrower
- The mortgage processor gathers all the conditions
- This includes the home appraisal
- The mortgage processor gathers all the conditions of the conditional loan approval
- The processor then submits the conditions back to the mortgage underwriter for a clear to close
- The mortgage underwriter may find more conditions
- If so requests it to the mortgage processor
- The underwriter issues a clear to close after signing off all conditions
A clear to close is when the mortgage loan underwriter signs off on the mortgage loan and clears it for doc preparation and funding.
Next Step In Mortgage Process After Clear to Close Leading to Closing
The file goes to the closing department and funding department where they make arrangements for a home loan closing with the title company:
- The loan processors schedules the closing date
- Lender prepares and sends closing docs to the title company
- The title company and lender go over the Closing Disclosure
- Buyers and Sellers meet at home loan closing
- Buyers and Sellers sign closing docs
- The lender wires the funds to the title company
Home buyers get keys at home loan closing.
Clear To Close And Prepping Docs And Wire
As mentioned earlier, a clear to close is when a mortgage underwriter has cleared all of the borrower’s conditions listed on the conditional mortgage loan approval. In order to schedule a home loan closing, the underwriter needs to issue a clear to close
There is a three-day mandatory waiting period to schedule a home loan closing after a clear to close due to new mortgage regulations called TRID. TRID went into effect in October 2015
The lenders need to disclose the Closing Disclosure three days prior to closing. The Closing Disclosure, referred to as the CD, has the final numbers for the buyers and sellers.
Final Closing Disclosure And Scheduling Home Loan Closing
Here is what the Closing Disclosure is:
- The New CD is the replacement of the old HUD-1 Settlement Statement
- The Closing Disclosure is the line item of charges and fees from both sides
- The CD reflects the cash to close from the home buyer and funds to the home seller
- The title company and title agent will compile the figures of the buyers and sellers
The mortgage lender will sign off on the final CD and then authorizes to fund the loan.