What Happens During the Mortgage Loan Processing of Your Home Purchase
After you and seller have negotiated a final price and signed the official purchase contract, the home-buying focus falls upon the mortgage lender, who must finalize the mortgage loan for the closing.
Depending on the loan program and borrower situation, loan processing can take anywhere from one day to two months. The average processing period for most conforming loans is two to four weeks.
Loan processing and underwriting normally entails the verification, documentation and confirmation of the application data, so that the applicant and subject property are proven qualified for the mortgage financing. Processing normally entails the following stages:
- Property documentation
- Application Processing
- Final Underwriting
- Closing
Property Documentation
As soon as the purchase contract is complete, you should immediately fax a copy of it to the lender. You should also provide copies of any checks used to pay earnest money deposit, so as to document all funds used.
The lender will order an appraisal report for the subject property. For this, the lender and appraiser will need the names of either the sellers or the listing agent, since the appraiser will need to enter the property. The lender will not need the property inspection report, unless it is a new construction.
The lender will handle obtaining sufficient evidence of title, usually in the form of a preliminary title insurance commitment.
If the property is a condominium or part of any homeowners association, the lender must send a questionnaire to the association. In addition, the lender must obtain copies of the budget, certificate of insurance, declarations and by-laws for the association. With refinances, you should already have copies of these association documents.
The property is the collateral for the loan, and all mortgage lenders will insist on confirming that this collateral is sufficient and protected.
Application Processing
If you have not yet been preapproved or if there are any approval conditions still outstanding for the mortgage loan application, your mortgage lender must complete the loan processing so as to fully approve the loan.
Typical processing requirements include the following tasks and responsibilities:
- Sufficient verification of satisfactory income and employment
- Verification and documentation of sufficient buyer funds
- Compilation, with necessary explanations, of adequate credit history
- Review and acknowledgment of all necessary application forms and disclosures
- Documentation of acceptable property
The above documentation may take specific forms (such as recent pay stubs or a full appraisal report), and each lender will differ in the amount of documentation required. Whatever the requirement, you must try to assist and cooperate as much as possible, as lenders have very little leeway in what their auditors will allow.
The more quickly that you can respond to loan processing requirements, the more quickly that the loan application can be processed and approved.
With some issues, the lender must perform all of the documentation. However, you will be required to provide supporting documents, so borrower preparation is important.
Final Underwriting
Once all required processing documents have been compiled, the lender will perform its final underwriting of the mortgage loan application.
If the lender’s underwriter concludes that additional documents are needed, the lender will notify you immediately. The lender will still issue an approval, as long as the minimum processing documents have been provided—however, such approvals will normally be conditional.
As soon as the loan application is fully approved, the lender will issue a mortgage loan commitment for the specific loan amount, program and approved terms. With this commitment, all parties involved will begin final preparations for the settlement
Closing the Mortgage Loan Financing and Purchase
The days immediately before the closing can be very hectic times for you, as the borrower, often will have to rush for final documents and final conditions, such as a hazard insurance policy.
The seller’s attorney has the prerogative when scheduling closing. They also select the title company and office for the closing. Unfortunately for you, it is typically the seller’s choice, and you have no input regarding the title company. When it is time to schedule the closing, the seller’s attorney will consult with the lender and your attorney to arrange an acceptable day and time.
At the closing, the lender will provide a loan closing package that will include dozens of pages of legal documents and disclosures. These must all be reviewed and signed by you (and your attorney). Once all documents have been signed and all figures finalized, the purchase closing will be completed by the closing agent — culminating in exchange of funds, keys and possession of the property.
The closing agent will send the original loan documents back to the lender, after recording the mortgage and deed, and the mortgage loan will begin its normal servicing. The next chapter will discuss the closing in more detail.
Go to next HomeBuyer Guide chapter: “16. Closing The Purchase”
