UNDERSTANDING THE LOAN PROCESS
#1 PREQUALIFICATION“Prequalification” occurs before you actually apply for a loan. The lender gathers information from you about your income and debts and makes a financial determination, subject to the later underwriting process, to determine how much house you may be able to afford.
It’s a good idea to know how expensive a home you can afford before you start shopping for one. If you are refinancing the loan on your existing home, then the prequalification process should help you decide whether refinancing is a good idea for you.
#2 APPLICATIONThe “application” is actually the beginning of the loan process, and usually occurs after you have found a property you want to buy, or have determined that you wish to refinance the loan on your existing home. You complete a mortgage application with the loan officer and supply all of the required documentation for processing. Various fees and down payment options are discussed at this time and you receive a Good Faith Estimate (GFE) and a Truth- In- Lending Disclosure (TIL) within three days that itemize the rates and associated costs for obtaining the loan. You may wish to discuss “locking” an interest rate at any point after you complete your loan application. If you choose not to “lock” an interest rate, then the interest rate will “float” with the daily rates offered by the lender until you close your loan.
#3 PROCESSING OF YOUR ESTIMATED LOANThe lender will typically enter your information in an automated underwriting system that will provide the lender with a list of the documentation needed to achieve loan approval that is personalized to you to meet each borrower’s loan criteria. The “processor” reviews the credit reports and documentation to verify your employment, debts and payment histories. If there are unacceptable late payments, collections for judgment, etc., the processor may request a written explanation from you. The processor also reviews the appraisal and survey and checks for property issues that may affect final loan approval. The processor’s job is to put together an entire package for the underwriter. #4 UNDERWRITING YOUR LOAN
The “underwriter” is responsible for determining whether the package prepared by the processor meets all the lender’s criteria. If the lender needs more information, the loan will be “suspended” until the lender contacts you to request additional information.
If the application package meets all the lender’s criteria, the lender will be able to offer a full loan approval. Full loan approval often depends on the resolution of challenging credit, income or property issues that may arise during the underwriting process. If the underwriter is able to give a full approval, then the lender issues a commitment to lend, orders title insurance, clears all contingencies to its commitment to lend, and then schedules a closing date.
#5 CLOSING
The “closing” will occur after the lender gives a full loan approval and clears any closing conditions. At the closing, the lender “funds” the loan with a cashier’s check, draft or wire to the closing agent who disburses funds in exchange for the title to the property. This is the point at which you finish the loan process and actually refinance or buy the house, subject to the loan criteria. Closings occur at different places in different states. For instance, some states require that the closing take place at a closing attorney’s office while others use a title or escrow company. (New York State closings occur at attorneys offices)
Article written by Nancy Lilly-Hamilton. A Certified Mortgage Planning Specialist with CTX Mortgage LLC. 1279 Route 300 Newburgh, NY 12550 Contact me by cell at 914-760-9524, or email me at Nancy.lilly.hamilton@ctxmort.com. Visit my web site at www.ctxloanofficer.com/nancylilly
