Our goal is to ensure that each buyer understands the mortgage process from application through closing. If you are considering a home purchase (especially as a first time home buyer), learning these eight steps will simplify everything.
Mortgage Process Steps
- Completing an Application
- Pulling Credit
- Mortgage Documentation
- Inspections Process
- Underwriting Process
- Closing Process
- Get the Keys & Move In
Mortgage Process Starts With an Application
Some prefer completing a mortgage application online. Many like to complete the application over the phone with a loan officer. While others prefer a face to face application interview. No matter the preference, there are a few key points to remember about the application process.
First of all, a complete application beats an incomplete application any day of the week. Do not rush through an application with partial or incorrect answers. Almost assuredly, it will come back to bite the buyer and will certainly cause delays. Everything, especially the mortgage underwriting process, depends on the loan application. If it has erroneous or incomplete information, it takes the loan officer and other team members down the wrong road. A common borrower complaint includes lenders asking for additional documentation late in the process. Often, the causes result from following the information supplied up-front. So, fill out all applicable areas and be as accurate as possible.
Next is do not commit loan fraud. Many believe that stretching the truth or telling a white lie to prop up a borrower’s loan approval chances is not a big deal. However, when this occurs, results can vary from delays, more paperwork, loan denial, fines, and yes prison. The most common mortgage fraud includes inflating income or assets, hiding liabilities like child support or private mortgages, and residence type. Residency fraud includes applying as a primary residence for best terms, but actually, the purchase is for an investment property.
A computer process saying is “junk in junk out.” It’s the same thing when buying a home. Beginning with a “junky” application will cause “junky” results in the end. So, no matter the choice of completing the application, involve your loan officer and follow this advice.
Pulling Credit During the Mortgage Process
Either during the application or once it is complete, a credit report is pulled on all applicants. Traditionally in the mortgage world, lenders pull a merged credit report file from the three major credit bureaus. These credit bureaus include Equifax, Experian, and Transunion. For underwriting approval, lenders use information from all three, but the middle credit score is considered the “mortgage credit score.”
Once the credit report is pulled, the loan officer reviews the score and details with the borrowers. During this phase, the loan officer looks to clarify any necessary areas by asking questions. These may include matching mortgages to properties, verifying deferred or income-based student loan payments, or asking for explanations on credit issues. Borrowers should be truthful and detailed in this area to start the loan process on the correct path.
Although most understand a credit report is required for mortgage approval, many are confused about credit scoring. Besides paying bills on time, what else factors into a score? Believe it or not, paying bills on time or late accounts for only 35% of a credit score. So, where does the other 65% come from? 30% of a credit score comes from balance compared to credit limits as a percentage on revolving accounts like credit cards. The remainder comes from the length of credit history, the number of inquiries, and credit type mix. If you’d like to learn more about credit score improvement, click on the buttons below for additional information.
Mortgage Pre-Approval Process Explained
Once credit is pulled, lenders usually run the application and credit report through an automated pre-approval system like Fannie Mae (Desktop Underwriter) or Freddie Mac (Loan Prospector). These systems provide a mortgage pre-approval within minutes. A solid pre-approval tells a buyer which items are required for full underwriting approval and closing. Plus, it allows a buyer to start the home shopping process. Although, sometimes the buyer already has a home picked out by now. That’s okay too.
A very common request from the seller and the listing agent for the seller is a mortgage pre-approval letter. It may even be required just for a seller to show the home to a buyer. Buyers should care about this too. Why look at homes outside the buyer’s reach?
Generally, a pre-approval is very simple in nature and still has some outs. These include income and asset verification, appraisal, title search, and applicable insurance coverage, but, in a moment we share how to solidify this area for a better chance of contract and quicker closings.
Just remember, for the best and most accurate pre-approval findings, it still starts with a complete and precise application. This part is on the buyer and the loan officer. The better this small team works together, the better the results.
Providing Documentation in the Mortgage Process
At some point (hopefully in the beginning), the buyer provides required documentation to process the mortgage application. These are items required by the initial pre-approval and the underwriting approval. Although, a buyer does not have to wait until approval. Buyers may provide mortgage documentation at application to speed up the process and improve the approval accuracy early on.
QuickStart, OVM Financial’s online application allows buyers to upload documentation such as pay stubs, identification, W2’s or tax returns, and bank statements. Our online application includes the ability to upload asset history directly from a buyer’s bank account. Just another way that we simplify the home buying process for buyers.
Even though lenders are not allowed to require documentation from borrowers before providing a Loan Estimate, buyers do improve their chances of accurate approvals dramatically by providing documentation up-front. For instance, calculating income such as overtime, commissions, self-employed, and even hourly is much more accurate with income documentation. Think about it; borrowers either do not know their actual gross pay or at least do not understand how lenders calculate income. So, take a moment and provide a few documents at the start to improve the process for everyone.
To take things a step further for the buyer, by providing documentation at application, it allows a buyer to receive an actual underwriting approval. Also known as conditional approval.
Home Inspections During the Mortgage Process
Once under contract, buyers need to get started with applicable inspections on the home. Some inspections are required by the lender, while others are up to the buyer. Both are important.
Lender Required Inspections
- Well Inspection
- Septic Inspection
- Termite Inspection
- Foundation Inspection
Depending on the loan type, property, and lender, certain inspections must be completed. An appraiser completes an inspection of the home to determine the market value in addition to the home’s condition. Government loans like USDA, VA, and FHA have more safety and condition requirements than conventional appraisals.
Additionally, government programs require water or septic inspections when applicable. Lenders are not picking on a buyer. These tests are meant to protect both the collateral and the new homeowner.
Finally, if the buyer uses a VA loan for the purchase, a termite inspection is required. Also, if the appraiser notes a termite concern, lenders will require a termite inspection.
Although the above are lender required inspections, the buyer should want these completed as well.
Home Inspections Chosen by the Buyer
- Home Inspection
- Well Inspection
- Septic Inspection
- Radon Inspection
- Appraisal (even cash buyers may want an appraisal)
- Termite Inspection
Just because a lender does not require an inspection, a buyer should not ignore these. Quite often, lenders do not require septic or well inspections. That does not mean a buyer should avoid the well or septic system. Imagine closing on a home and learning that the water has bacteria. Maybe the septic tank is backed up, needs pumping, or even needs replacing.
The home inspection is strictly for the buyer and should not be taken lightly. First of all, remember that an appraisal is not a home inspection. Next, a home inspector is your friend in the home buying process. Then hopefully, a buyer hires a licensed and insured inspector. Expect the inspector should crawl underneath, on top of, and through the whole house. So, the report will be very detailed with descriptions and pictures of potential problem areas. Many inspectors encourage the buyer to attend the home inspection so areas may be pointed out and discussed on the premises.
It’s a good idea to perform any desired or required inspections during the due diligence period of a contract. Get everything out of the way early. If there is a significant issue, the buyer may choose to request repairs, cancel the contract, or switch to a renovation loan.
Simplifying the Mortgage Underwriting Process
Once a buyer has been pre-approved and has provided documentation, the file moves to the underwriter. The underwriting process involves comparing the borrower’s application, credit report, and documentation to program guidelines. Remember earlier how we mentioned providing an accurate application and documentation? This is why. Everyone’s goal should be a quick, clean underwriting approval.
The underwriting process varies widely among lenders. OVM is always looking to redefine the mortgage process, and underwriting is no different. Buyers who are pre-approved and provide documentation early benefit from an up-front underwriting approval.
Why is Up-Front Underwriting Important?
Either way, the OVM underwriting process is fast, but having an underwriting approval right up-front provides many advantages. Confidence is one. Do not underestimate the feeling of buyer and realtor confidence. The earlier the underwriting approval, the less stress there is through closing. Anyone should prefer an early underwriting approval and coast smoothly into closing.
Seller confidence is key as well. Unless you have been a seller, you may not understand the level of stress on that side. Imagine the planning the seller must go through on their end. Moving into another house, going through their mortgage process, and another seller depending on them as well. A buyer should care about making their seller confident because it could sway a seller to choose their offer.
Protecting earnest money is another advantage. Typically, purchase contracts require a deposit from the buyer who is held in an escrow account. At a certain point, the funds may be at risk. Therefore, an early underwriting approval or even a denial helps protect these buyer funds.
Underwriting Clear to Close
This is what everyone wants to hear. We have final underwriting approval and clear to close. Final underwriting approval means any underwriting stipulations have been satisfied. The earlier this can happen, the better. Next, the file moves to the closing department. So, everyone should feel very good at this point. Yet, it’s not done yet.
Mortgage Closing Process
Once the underwriting clear to close is received, the buyer is in the hands of the lender closing department and the closing settlement company. The settlement company may be a closing attorney, title company, or other. In addition to the other processes, closing involves steps as well.
- Insurance binder finalized
- Review invoices
- Set closing date
- Prepare closing documents
- Final verbal verification of employment
- Coordinate with a settlement company
Best recommendations for buyers would be to stay in communication with the loan officer or loan officer team.
Additionally, make sure to coordinate with your insurance agent and finalize the policy. This is required for a lender to send the closing package. Best practices include taking care of insurance very early on. At least having the quote and application completed.
At this stage, the closing disclosure must be provided to all borrowers at least three business days before closing. The initial closing disclosure usually does not have final, accurate figures yet. But, while the above-listed steps are performed, the final figures are completed. Then, the closing package is sent to the settlement company.
Be Prepared for Closing
On the day of closing all required signors should bring an ID, any necessary funds, and warm up the arm for signing. The settlement company representative explains closing documents and the borrower(s) sign. If it is just a notary closing, ensure that someone with the lender or settlement company explains the documentation. No buyer should close without a thorough explanation of what they are signing.
Once signed, the funding process takes over. The lender sends funds to the settlement company to combine with any borrower funds so that the settlement company may distribute all funds. The major one is paying the seller, but it also involves paying invoices to all parties. Once the settlement company has the funds and the OK, the deed and mortgage are recorded. That’s when the property is officially in the name of the buyers, and the mortgage is owed! At this moment, the mortgage process is complete.
Get the Keys and Move In
Once the deed and mortgage have been recorded at the register of deeds, the home officially belongs to the buyer.
Now, the buyers become owners! This is the moment when the keys are handed over, and buyers are allowed to move in. Before move-in day, change your mailing address, set up utilities, and begin packing. Another recommendation is to change the locks on the house. There is no telling how many keys are out there, especially in the case of a foreclosure.
Things To Remember About the Mortgage
- Keep a copy of the purchase and mortgage documentation
- Save your temporary payment coupons
- Consider setting up a payment draft
- Mark the first payment date on a calendar
- Review life and disability insurance coverage
Hopefully, this has shed some light on the mortgage process from application to moving in. If you are ready to get the process started, begin your application or schedule a call with an OVM Financial loan officer.