Are you buying a new home with mortgage loan financing? Is the mortgage loan process difficult for you to understand? Don’t worry! This step-by-step guide of mortgage loan process will help you understand the procedure of a typical mortgage loan.
The Six Steps of the Mortgage Loan Process
It is often observed that people have an easier time understanding the mortgage loan process when explained in a step-by-step method. Let’s get to know the mortgage loan process in a six step-by-step stages!
Step 1: Mortgage Pre-Approval
Mortgage pre-approval can be thought as a kind of financial pre-screening. It has ‘pre’ in the name as it happens in the initial steps of the mortgage loan process before you even start searching for the home for purchase.
Pre-approval is when a lending company reviews your financial situations and accordingly determines whether you’re a good candidate for the loan or not. They also tell about how much they can lend to you for your home purchase, with a pre-approval letter to that effect. The lending company can also check your credit reports and scores at this stage.
Step 2: Buying the House and Purchase Agreement
After getting pre-approval for the home loan, you can buy a property more confidently within that budget. In this stage, you need to look for the type of home you are willing to purchase within a stated budget. After you decide to buy a house and have the purchase agreement, you can move to the next step of the mortgage loan and that is filling the application.
Step 3: Mortgage Loan Application
In this step, you need to fill up all the details of the property, its cost, etc., in the mortgage loan application. It is important that you properly fill the application of the mortgage loan as it will be processed and sent for the next stage of loan approval. Incorrect information at this stage may result in your mortgage loan getting rejected (in worse cases).
Step 4: Mortgage Processing
Here, you need to submit all the home loan documents asked by the loan processor. They will review your mortgage loan file to ensure that all of the needed documents for the underwriting process are submitted properly. These documents include purchase agreement, employment letters, bank statements, tax records, and many more. The loan processor may also ask for credit reports, begin verifying income, assets, employment, etc. They may also ask for the home appraisal to determine the value of the property.
Step 5: Mortgage Underwriting
Underwriting is a very crucial step of the mortgage loan. In this stage, the loan underwriter closely examines all of the loan documentation prepared by the loan processor to make sure it complies with lending needs and guidelines. The underwriter here is the key decision-maker during the mortgage loan process. This individual has even the authority to reject the loan if it doesn’t meet certain pre-established criteria. The underwriter will cross-check all the documents to ensure both the property and the borrower match the eligibility needs for the specific mortgage product or program being used. The primary responsibility of the underwriter is to evaluate the level of risk associated with the loan. He/she will review your credit history, your debt-to-income ratio, your assets, and other elements of your financial picture to predict your ability to make your mortgage payments. The underwriter for mortgage loan mainly focuses on the three C’s of mortgage underwriting - capacity, collateral, and credit. If the underwriter encounter problems during this review process, he or she may give the borrower a list of conditions that are required to be resolved. This often is known as conditional approval.
So, mortgage underwriting is arguably the most important step in the mortgage loan process.
Step 6: Mortgage Loan Approval and Closing
If the mortgage underwriter is satisfied with the property being purchased and submission of all the documents, then he or she labels it as ‘clear’ or ‘close’. This means all the requirements of the mortgage loan have been met, and the loan can be funded. Perhaps, this is the last step in the mortgage loan process.
Hope, now you know the steps involved in the mortgage loan process clearly. So, become stress-free and buy a new home on mortgage loan financing.