Step By Step Of Home Loan Process For Home Buyers
This BLOG On Step By Step Of Home Loan Process For Home Buyers Was Written By Gustan Cho
The Home Loan Process: From Application To Closing
The mortgage qualification process is very complex for most home buyers, especially to first time home buyers so we have decided to write and publish this Step By Step Of Home Loan Process For Home Buyers blog especially first time home buyers. The first advice I can give all home buyers, whether veteran home buyers or first time home buyers is to educate themselves on the Step By Step Of Home Loan Process For Home Buyers and overall mortgage process. The whole mortgage industry went through a major overhaul and change after the 2008 Real Estate and Mortgage Meltdown . Countless of mortgage regulations were implemented and major changes to the mortgage industry were created by not just mortgage regulators but politicians as well. Here are some of the major changes that were implemented and why the Step By Step Of Home Loan Process For Home Buyers is important and is totally different than it was prior to the real estate and credit meltdown:
- The NMLS system was created and launched for mortgage companies and loan officers
- The SAFE ACT was created and implemented
- The Consumer Protection Financial Bureau, or CFPB, was created to regulate mortgage lenders and loan officers
- All mortgage loan originators who worked for mortgage brokers and mortgage bankers were required to get licensed
- Loan officers who work for an FDIC Charter Bank or Credit Union do not have to be licensed and are exempt from taking the national NMLS Exam and NMLS federal and state licensing requirements
- FHA, VA, USDA, Fannie Mae, Freddie Mac went through a complete overhaul. New mortgage guidelines were created and launched
The mortgage process is actually a process and consists of six stages. Here are the step by step mortgage process
- Mortgage application stage
- Mortgage Qualification and Pre-Approval Stage
- House shopping stage of the mortgage process
- Loan processing stage of the mortgage process
- Mortgage underwriting stage
- Home Closing stage of the mortgage process which is the final stage
The Mortgage Application Stage Of The Home Loan Process
The mortgage application stage of the Home Loan Process is the most important stage of the overall mortgage process. Over 75% of borrowers who consult with The Gustan Cho Team are folks who were either denied for a mortgage at the last minute after a pre-approval has been issued or are going through a stressful mortgage process because they were not properly qualified. The only reason for last minute loan denials or constant stress during the mortgage process is because the loan officer did not properly qualify the borrower.
Here is the mortgage application stage of the home loan process. There is no reason why a pre-approved borrower should not just close on their home loan but close the home loan on time:
- Your loan officer will take your official mortgage loan application, which is a four page application called the 1003
- Your loan officer will run a tri-merger credit report
- Your loan officer will request mortgage documents required to process your loan which include two years tax returns, two years W2s, 30 days paycheck stubs, 60 days bank statements and asset statements, and other documents that pertains to your credit and financial profile
- For Veteran borrowers with a Certificate of Eligibility, the loan officer should get documentation and get it by the VA of the borrower’s military certification. The Department of Veteran Affairs will provide the COE, Certificate of Eligibility to the mortgage lender. Veteran borrowers can also pull it themselves as well through the VA website.
- One of the most important things many loan officers do not do is thoroughly review the borrower’s credit report. Just taking a quick glimpse of the borrower’s credit report to make sure that borrower meets the minimum credit score requirements and credit items is not sufficient and this is one of the main reasons of stress during the mortgage process
- The loan officer needs to go over line item per line item with the borrower and make sure that the items reporting on the borrower’s credit report is accurate especially credit card balances as well a public records. Public records not showing up on the credit report needs to be addressed because it will be discovered when the lender does a third party public records search during the home loan process. You cannot have credit disputes while in the home loan process and if there are, it needs to be retracted before proceeding with the home loan process.
- Most mortgage lenders have lender overlays so just because a borrower may meet federal lending guidelines does not mean that the lender may not have additional overlays. Any uncertainties by the loan officer, the loan officer should get a second and third opinion and note it on the borrower’s file before issuing a pre-approval letter.
- All mortgage applications should be run through an Automated Underwriting System loan approval before a pre-approval letter is issued
- Once a pre-approval letter is issued, the borrower can now shop for a new home and can enter into a real estate purchase contract
Executed Purchase Contract
Once you are armed with a solid pre-approval letter, you can now go shopping for a home and enter into a real estate purchase contract. Once you get an executed real estate contract, you need to provide that to your loan officer and your home loan process officially starts. Here is what the next steps of your home loan process is:
- Loan officer will ask you for updated documents
- Loan officer will need to provide you with a Loan Estimate which is also called the CD. The Loan Estimate is the new GFE, or Good Faith Estimate where the CFPB replaced it with the new Loan Estimate
- The Loan Estimate will state estimated costs of your closing costs
- You need to receive your Loan Estimate within 3 days of you completing your mortgage loan application
The Loan Estimate & Mortgage Loan Disclosures
The Loan Estimate will consist the following breakdown of your closing costs and terms of your mortgage loan application. Again, a Loan Estimate is not a true bottom line cost sheet but an estimated cost. Your Loan Estimate will properly be overly disclosed which means that lenders normally over disclose closing costs:
- The Loan Estimate is also referred to as the LE
- The Loan Estimate states a list of itemized closing costs
- The LE will stat the mortgage rate, P.I.T.I., which is the principal, interest, taxes, insurance
- The Loan Estimate will state the type and term of the mortgage loan that you are applying for
A mortgage processor will be assigned to your mortgage loan file and mortgage disclosures will be emailed out to the borrower. Once the borrower signs the mortgage documents, the mortgage home loan process officially starts.
Mortgage Processing Stage Of The Home Loan Process
Once you have signed the mortgage loan disclosures, a mortgage processor is assigned. There are five stages of the processing stage of your mortgage loan application:
- Submitting To Underwriting
- Clearing Conditions
- Submitting To Clear To Close
The role of mortgage processors is the following:
- Gathering all mortgage docs
- Making sure that all docs are complete and have no missing pages
- Start verification of employment, verification of deposit, verification of rent
- Order home appraisal
- Order Title
- Order IRS Verification
- Coordinate closing with title company
- Once the file is conditionally approved by mortgage underwriter, gather conditions and prepare the file for Clear To Close
Underwriting Stage Of Home Loan Process
The mortgage underwriter is the person that will review the mortgage loan application and issue a mortgage loan approval or loan denial because the borrower does not meet the lending guidelines. If the mortgage underwriter deems the borrower qualified, the underwriter will issue a conditional loan approval.
Conditional Loan Approval
A conditional loan approval issued by the mortgage underwriter is the following:
- The underwriter feels that the borrower is qualified but needs certain conditions for the underwriter to issue a clear to close, which means that the underwriter is ready to sign off for the closing department to prepare docs for closing and wire funds
- Example of conditions on a conditional mortgage loan approval may be updated bank statements, homeowners insurance declaration page, most recent paycheck stubs, final verification of employment, proof of funds for cash to close, and letters of explanations for certain uncertain issues the underwriter may have
- Locking the rate will be another condition. A mortgage underwriter cannot issue a clear to close without the loan officer locking the rate
Clear To Close And Pre-Closing
Once the mortgage processor has gathered all of the conditions, the processor then packages the file and submits the file for a clear to close to the underwriter who has issued the conditional loan approval. The underwriter will go and review the conditions and most of the time, the underwriter will issue a clear to close. A mortgage underwriter can find additional conditions that may be required. If this is the case, the file goes back to the mortgage processor and the process of gathering conditions restarts and needs to be resubmitted to the underwriter for a clear to close. Once the underwriter issues a clear to close, the mortgage file is nearing the finish line. The file is then submitted to the closing department of the lender and the closing department will coordinate the closing with the title company.
The closing department of the lender and the title company will start working on the Closing Disclosure. The Closing Disclosure, also referred to as the CD, will state the exact list of closing costs and the cash to close required by the borrower and the proceeds going to the seller. The Loan Estimate was the expected costs or estimated costs. The Closing Disclosures is the exact costs. Once a final CD has been issued, there is a three day mandatory waiting period for all to review the Closing Disclosure before closing.
Final Walk Through Of The Home Loan Process
Most home buyers will do a final walk through of the home they are buying 24 hours to 48 hours prior closing. This is where the home buyer can make sure that the home is in ready move in condition and that everything is working and in good condition. Any damage or defects to the home needs to be brought to attention during the final walk through of the property.
Closing: The Final Step Of The Home Loan Process
The home closing is the moment buyers and sellers were waiting for. Both buyers and sellers sign closing docs, the lender wires the funds, and the keys are transferred to the buyers and the proceeds of the sale is given to the home sellers.