Buying a home can be an exciting and fulfilling goal to achieve, especially if you have fought to overcome credit issues in order to be eligible for a mortgage. Yet the home buying process leaves many borrowers feeling confused and frustrated as well. If you are working toward the goal of purchasing a home it pays to educate yourself about the mortgage approval process in advance.
Step One: Pre-Approval
For most people the home buying process typically begins with an initial mortgage application. This initial application likely involves you providing basic information and sometimes documentation to your lender to confirm your employment, income, bank account balances, and other assets. Your credit reports and scores (all 3 of them) will generally be pulled during your initial application as well.
If your credit is not up to par with the lender’s standards your application will be denied. Of course, if you are denied based upon your credit, that does not mean you will never be able to purchase a home. However, it may signify that you have a bit of hard work ahead of you and that it might be in your best interest to work with a credit repair professional in an effort to prepare for your loan.
Assuming your initial application now meets all of the lender’s preliminary requirements you will probably be issued a “pre-approval letter.” A pre-approval is not a guarantee of financing, but instead a conditional commitment of a maximum loan amount. At this point you can typically begin working with a Realtor and start hunting for the perfect home. This is where the mortgage approval process really starts.
Step Two: Full Application
Once you have found the home you want to purchase, made an offer, and your offer has been accepted it is time to complete your full, official application with your mortgage lender. Your loan officer will likely request a list of documents which he or she needs in order to submit your file to underwriting. The documents (i.e. bank statements, tax returns, W2s, etc.) will primarily serve to prove your income and assets. This continues the mortgage approval process and makes sure that you can actually afford the mortgage.
At this stage you will also be required to provide the loan officer with information regarding the property you plan to purchase. Your Realtor should be able to help provide the property details needed in order to complete your application.
Step Three: Processing
Your mortgage processer, working closely with your loan officer, prepares your file for underwriting. During this phase of the mortgage approval process an appraisal of your property is ordered, a title search is ordered, and your employment and bank account information is typically verified. If any additional documentation is required your processor may request it from you at this time as well.
Step Four: Underwriting
Underwriting is perhaps the most important phase of the mortgage process. It is where your loan is officially approved or denied. (Although you could technically have even this approval revoked at a later time if your “borrower circumstances” change. More about that later.)
Your underwriter will review your full loan package, verifying documents and making sure no fraud has been committed. The underwriter is also responsible for verifying that your application meets the lender’s standards for approval as well as any regulations and guidelines set forth by federal and state regulators in addition potentially to HUD, Fannie Mae, and/or Freddie Mac.
Once the package has been fully reviewed, the underwriter will issue a decision – approved, denied, or approved with conditions. If your loan is conditionally approved you will likely be required to provide the lender with additional documentation at this time such as, perhaps, a letter explaining any negative information present on your credit reports.
Step Five: Clear to Close
Once you have satisfied all of the underwriter’s conditions (if applicable) you are “clear to close.” This means that you have provided everything required of you and it is time to sit back and wait. Your lender’s team will be busy preparing your loan documents and scheduling a closing date for your loan.
Being cleared to close is certainly exciting, but that does not guarantee you the money in hand to purchase your home just yet. The full process of receiving a mortgage generally takes 30-45 days, sometimes more if you are not prepared or if problems arise. As a result, lenders will generally require a final credit check just prior to your actual closing in order to confirm that your level of risk remains the same. If you have experienced any major credit or financial changes since your initial credit check then you could find yourself suddenly denied for financing.
In order to avoid any such potential problems it is extremely important to keep your credit reports static until after closing on your mortgage. You do not, for example, want to make the mistake of applying for new credit, taking out any new loans, or running up credit card balances at any time during the mortgage process.