An informed property buyer is a successful buyer. The mortgage loan process is much less complex if you know how to prepare and what to expect along the way. That’s why we’re explaining the mortgage process steps and what it takes to get your property loan from application to closing.
Mortgage Loan Process Steps
As you can see from the “Loanopoly” illustration above, the home loan process has several steps. All mortgage process steps happen during 5 major phases of the home buying process:
These phases of getting a mortgage include everything from working with a lender and submitting your loan application for approval, to closing on the property and making your first payment. Now that you’re familiar with the timeline for getting a mortgage, let’s take a closer look at what happens during each phase.
Phase 1: Mortgage Loan Application
The mortgage loan application process begins with your online application. The application helps organize and store your application information. You can apply for an online mortgage from any location and at your convenience. If you have to step away from your application and come back later to add more information, our application will help you pick up right where you left off.
Everything, especially the mortgage underwriting process, depends on the loan application. You can dramatically improve your chances of accurate approval by providing the correct documentation and personal information up-front. Suppose your loan application has erroneous or incomplete information. In that case, our corporate team will not have the tools they need to issue your approval for a mortgage, which would prevent or delay you from being able to buy your home.
A common computer process saying is “junk in junk out.” It’s the same thing when buying a home and property. Beginning with a “junky” mortgage application will cause “junky” results in the end. So, stay in close contact with your loan officer, ask questions, and complete the application accurately to set yourself up for a streamlined mortgage experience. You will need to include personal information, proof of income, current equity, and credit score on your mortgage application.
It is also important to understand mortgage rates at this phase in the mortgage journey. Today, mortgage rates are constantly changing, and you will need to know what rates to expect when you buy a property. A mortgage calculator can help you determine costs and interest rates.
Mortgage Pre-Approval Processing Explained
Once your credit is pulled, lenders usually run the application and credit report through an automated pre-approval processing system like Fannie Mae (Desktop Underwriter) or Freddie Mac (Loan Prospector). These systems provide a mortgage pre-approval within minutes. A solid mortgage 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. If your application can’t be pre-approved, we will review your mortgage application, income level, credit level or score, and other relevant factors to inform you of what you need to do to get mortgage approval.
A very common request from a home seller is a mortgage pre-approval letter. Sellers want to know that you have the financial means to buy their home and pay the associated fees. You should care about this too. Why look at homes without knowing how much you can finance? When you have an accurate understanding of your finances, it will help prevent you from investing in a property that is beyond your means and that you wouldn’t be able to make your mortgage payment on.
Just remember, for the best and most accurate pre-approval findings, it still starts with a complete and precise mortgage application. This part is on the buyer and the loan officer. The better this small team works together, the better the results and chances of your mortgage application getting approved.
Phase 2: Shopping For Your Home With a Real Estate Agent
When you are armed with a pre-approval, you can begin shopping for your new home. During the shopping process, you will:
- Meet with your real estate agent
- Make your wish list
- Begin touring homes
- Make an offer on a home
Once your offer is accepted by the seller, your home is officially “under contract,” and things kick into high-gear for the mortgage.
Phase 3: Inspections
Once your home is “under contract,” it’s time to schedule all necessary property inspections. Some inspections are required by OVM, while the others are up to you. Both are important to move forward with the mortgage process.
Lender Required Closing Inspections
The loan program guidelines will dictate what inspections are necessary before you buy your new home. For instance, federal government loans like USDA, VA, and FHA have more safety and condition requirements than conventional mortgage appraisals.
Additionally, federal government programs require water or septic inspections when applicable.
Finally, if the buyer uses a VA loan for the purchase, a termite inspection is required.
Although the above are required inspections when closing on a home, they are also great resources for you as the future owner of the property.
Home Inspections Chosen by the Buyer
- Home Inspection
- Well Inspection
- Septic Inspection
- Radon Inspection
- Appraisal (even cash buyers may want an appraisal)
- Termite Inspection
If an inspection is not a requirement made by the lender, it doesn’t mean you should skip it. Septic or well inspections typically fall into this category. 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. That is not something you want to find out a year into owning the home. By completing inspections before closing, you can make more informed decisions and potentially avoid future costs.
Furthermore, there have been buyers who skimp on the $50 – $100 termite inspection costs, only to find out the home is infested – after closing is not the time to learn that a house is termite infested.
The home inspection is one of the main required inspections. It is strictly for the buyer and should not be taken lightly. First of all, remember that an appraisal is not a home inspection. The inspector should crawl underneath, on top of, and through the whole house. 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. This is the time to make sure that you are confident with your choice and are ready to move forward with closing. 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.
Phase 4: Underwriting
The underwriting process involves comparing the borrower’s application, credit report, and documentation to loan program guidelines. The underwriter will examine the fine details of your application to confirm that you are prepared for loan approval by ensuring that you have a high enough income level for your monthly mortgage payment, a good credit score, and other necessary details. Remember earlier how we mentioned providing an accurate application and documentation? This is why. Everyone’s goal should be a quick, clean underwriting approval.
Underwriting Clear to Close
This is what everyone wants to hear. We have final underwriting approval and are clear to close. Final underwriting approval means any underwriting stipulations have been satisfied. The earlier this can happen, the better and the sooner you get to close on your new home. Next, the mortgage file moves to the closing department. So, everyone should feel very good at this point. Yet, the mortgage is not done yet.
Phase 5: Closing
Once the underwriting “clear to close” is received, your loan is in the hands of our closing department and your settlement company. The settlement company may be a closing attorney or title company. In addition to the other processes, closing also involves a series of steps.
- Insurance binder finalized
- Review payment invoices
- Set closing date
- Prepare closing documents
- Final verbal verification of employment
- Coordinate with a settlement company
As always, stay in close contact with your loan officer, banking services, real estate agent, and title agent during this phase. Additionally, make sure to coordinate with your insurance agent and finalize your homeowner’s insurance policy. A home insurance policy 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 on time and 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.
Prepare For Closing Day and Getting Your Mortgage
On the day of closing, all required signors should bring an ID, any necessary funds, and an arm ready for signing. The settlement company representative explains closing documents and the borrower(s) sign. If it is just a notary closing, ensure that your loan officer, realtor, or settlement company explains the documentation. It would be best if you did not close without a thorough explanation of what you are signing.
Once signed, the funding process takes over. We send funds to the settlement company. 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 buyers’ name, and the mortgage is owed! At this moment, the mortgage process is complete.
Hopefully, this has shed some light on what goes on behind the scenes before becoming a homeowner. Now that you’re familiar with the mortgage process steps, you will know exactly what to expect and how to prepare to get a personal mortgage. We will be just a click away when you’re ready to start your mortgage journey!