The 6 Major Steps in Mortgage Loan Processing
The mortgage process may seem far from simple. There’s a lot that happens between your initial consultation to your loan actually being funded. But i’ll walk you through it—and with full transparency.
Here are the six major milestones you'll reach during loan processing and what actions are being taken during this time.
1. Loan is submitted to processing
- The Mortgage Consultant collects and verifies all documents necessary to prepare the loan file for underwriting. These documents provide us with everything that we need to know about you (the borrower), and the property you are financing.
- During processing, the Mortgage Consultant:
- Begins verifying assets, income and employment
- Orders a home appraisal to determine the value of the property (if/when needed)
- Runs various compliance and eligibility checks to ensure the process advances quickly and smoothly
- Common documentation requested by underwriting includes:
- Evidence of Earnest Money
- Asset Verification
- Borrower Letter of Explanation (LOX)
- Gift Letter
- Copy of Note
- Source Large Deposits
- Verification of Employment (VOE)
- Fully Executed Sales Contract
- Next step: Processing submits the loan file to underwriting for initial review and approval.
2. Loan is submitted to underwriting
- The Underwriter begins reviewing all documentation to determine whether you qualify for a mortgage.
- While the Loan Officer and Mortgage Consultant will do their best to submit a complete file, an Underwriter may still have questions and/or require additional documentation to satisfy any conditions for a final approval.
- In addition to the loan file submitted by processing, the Underwriter examines:
- The completed appraisal
- Credit report
- Other ancillary documentation pertinent to the loan
- If the loan is approved, the borrower receives a list of conditions required to be met before receiving final approval and notification of Clear to Close.
- Next step: The Loan Coordinator provides you with underwriting's preliminary decision on the loan.
3. Loan is conditionally approved
- A conditional approval means that the Underwriter has signed-off on the parameters of the loan and most of the documentation, but still needs a few more items before fully approving the borrower for the loan.
- The Loan Coordinator contacts you to review the conditional approval and discuss any additional required items, as well as any ancillary documents that are needed to finalize the loan. This documentation can include:
- The completed appraisal (or updates to the existing report)
- Additional verifications
- Standard in-house items required for closing
- Once all conditions have been obtained, the Loan Coordinator will send the file back to the underwriter for a final review and approval.
- Next step: Once the loan is approved, a Mortgage Professional will schedule the closing.
4. Loan is Clear to Close
- "Clear to Close" means the Underwriter has signed-off on all documents and issued a final approval.
- The mortgage team schedules your closing and reviews the Closing Disclosure (CD).
- The CD is the standardized document that details the finalized terms for the loan, including a breakdown of all costs and fees.
- Next step: Closing the mortgage.
- Closing processes vary slightly depending on the type of transaction, as well as local, state and municipal laws.
- The type of transaction—purchase or refinance—determines who can provide you with accurate final numbers.
- Purchase: You can receive estimated figures from your Mortgage Professional, but they'll need to speak with your local title company or real estate attorney for a final amount.
- Refinance: In most states, you won't be required to use an attorney to close. In that case, you should speak with your Mortgage Professional for the bottom-line.
- What to bring to the closing:
- Photo identification
- Personal check or bank check from an approved account to cover the closing costs and down payment (unless the money was wired). NOTE: Your mortgage team will advise the best way to transfer funds for your closing.
- Whether purchasing or refinancing, prepare to sign a lot of documents!
- Purchase: While the process varies by state, typically a professional explains every document and notes where to sign. The lender’s wire may need to clear before you're handed the house keys and provided with copies of all the documents.
- Refinance: Depending on local laws, an agent from the title company will explain each document to be signed. If refinancing a primary residence, the loan will fund once the 3-day right of rescission has expired (on the fourth day). Once the rescission period has expired, the loan can no longer be cancelled. If refinancing an investment property or second home, the loan will fund on the same day.
- Next step: Funding the mortgage.
6. Loan has funded
- The final step on the loan process is now complete: Your loan has funded!
- At this time, all documentation is complete and the funds for the loan have been disbursed to the seller (purchase) or to the payoff of the prior loan (refinance).
- You should receive your first payment statement at the closing. This should be used to make the first and possibly second loan payment.
- If you did not receive the statement or cannot find it, you can reach out to your Mortgage Professional for a copy
- Final step: You'll receive correspondence in the mail from the final servicer (the company to which you will make all subsequent payments). This information details where to make future payments and how to set up auto-pay if desired.
Hopefully, this breakdown helps you understand the inner-workings of the mortgage process. Don’t hesitate to contact me with your specific questions along the way. I'm here to simplify a complex process and to provide the kind of personal service and advice you deserve.