In an attempt to not paint a grim picture…..I’m compelled to paint a grim picture. As forecasted in Real Estate Agent Beware! more and more ‘refinance boomer’ mortgage companies will move towards ‘purchase’ business to survive and, well, the domino of train wrecks will commence. It is because of this, my friend, that I felt led to open up the lender playbook and share with you the 6 steps to a successful mortgage. In the 6 steps outlined below I’m merely skimming the surface giving you the highlights entailed within each step.
The 6 Steps to a Successful Mortgage
3. Processing approval
4. Underwriting Conditional Approval
5. Underwriting Clear to Close
6. Closing and Funding!
Let’s unpack each one so you’ll have a crystal clear picture of what is involved before you can take each subsequent step.
Step 1 – PreQualification.
This step sounds a lot sexier than it really is. To obtain a Prequalification you simply share your income and asset information verbally and your lender reviews your credit history. Based on your credit history and the verbal income and asset information you’ve provided, your lender has preliminarily determined you qualify for a particular purchase price. **PLEASE make sure the purchase price you’re being pre-qualified for aligns with your monthly payment AND cash-to-close objectives. Do NOT allow a lender to mortgage you to the hilt!
Step 2 – PreApproval
The preapproval is highly preferred and carries much more weight than it’s predecessor ,the prequalification. In order for your lender to elevate your status to preapproval you’ll need to deliver the supporting documents for your income and assets….things like pays tubs, tax returns, W2s, bank statements, retirement statements, etc. Once your lender reviews and reconciles your supporting documentation with the verbal information you provided he or she will be able to elevate your status. This also gives you the confidence you need while shopping for a home AND tells the seller they have a serious buyer. It would be safe to say that this preapproval letter gives you more purchasing power in the eyes of a seller.
Once you have a contract on a home the REAL fun begins! Assuming your lender has all required income and asset documents mentioned in step 2, your processor will begin reviewing your loan file AFTER you return the signed application and disclosures. It’s very important that these are returned because processing will NOT review your loan until these are returned. Your processor will then begin ordering all the necessary services such as title, appraisal, employment verifications, social security and IRS verifications, and so on. Once your processor has all required documents we’re ready for step #4!
Step 4 – Underwriting Conditional Approval
At this point your processor has submitted your full loan file to the underwriter. Keep in mind that the processor goes through, on average, 565 documents! The underwriter is now reviewing ~500 client documents along with another 200-300 others such as the appraisal, the survey, the title history, the insurance coverage, compliance checklist, and the list goes on and on. This is the reason processing and underwriting spend 2-3 days reviewing and preparing your home loan file. Once she’s reviewed everything she’ll issue what is called a conditional loan approval. This is a small victory! This basically says that YOU are approved with a few conditions.
Conditions such as more clarification on a payroll deduction (maybe there’s a divorce or tax lien or something) or maybe there’s a lien on the home you’re buying and she needs more clarification. Whatever the case may be, once we have all conditions back to underwriting AND they’ve been reviewed we’ll move to step 5!
Step 5 – Underwriting CLEAR to close!
Once we have all conditions back the underwriter will review and issue the clear to close (assuming no further clarification or documentation is needed)! That means you’re golden! You’re cleared for take-off! Once the clear to close is received the underwriter will move your home loan file into our closing and funding department so that team can begin preparing closing documents and instructions for the title company. Once closing documents are prepared and issued to the title company, the title company will prepare the HUD 1 Settlement statement which has all your closing figures on it. We’ll review it to make sure you’re getting all credits owed to you – like earnest money, option money, seller tax credit, etc.
If it all checks out and looks good – we’ll then forward YOU the closing statement and you’ll schedule a time for closing with your real estate professional.
Step 6 – Closing Time!
This is where the REAL fun begins – closing time! Please make sure you bring your driver’s license (unexpired) and, most likely, the title company will want the money for closing to be wired OR in the form of a cashier’s check. Upon closing (mortgage speak for signing closing documents) the title company will review documents to ensure properly signed. VERY IMPORTANT – please make sure to sign your name EXACTLY as it reads on the documents. If there’s a middle initial, you’ll need to sign with a middle initial. If there’s a middle name, you’ll need to sign with a middle name as well. The last thing you want is to come back to the title company to resign the documents all over again.
Once all documents have been signed by you AND the seller, the title company will send to the funding department where the second set of eyes will review for accuracy. Once all documents look good the funding department will give the title company the thumbs up to ‘fund’ the loan. Then you get the keys to your new home!