ADM All Dominion Mortgage Blog

MorWhen Your Loan is in Process.

DO NOT!

1. Allow any one to pull your credit.
2. Apply for any additional credit.
3. Make substantial purchase on your credit cards or with any credit lines open.
4. Co-sign for anyone.
5. Change bank accounts, transfer money or make any large deposits.
6. Quit your job or change jobs unless it is in the same field and for the same or more money.
7. Start any home improvement projects.

DO!

1. Keep copies of all pay stubs you receive during the loan process.
2. Keep copies of all bank statements and any other financial statements to prove verify your assets.
3. Keep copies of the statements on all of your bills with balances and payment history.
4. Make all loan payments on time, even if they will be paid off by the loan.
5. Communicate with your loan officer and or processor once a week to review the process and items needed to close your loan.

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The Mortgage Process

Below is an outline of the mortgage process. It is important to understand where you are in that process so you can have a realistic expectation of what will happen and when it will happen. It is human nature to what to do as little as possible and to divulge as little information as possible. In this financial climate all lenders are being very meticulous to verify every piece of information provided and all loans are scrutinized more thoroughly than ever.

Please be patient and understand the process.

To understand the process and why they are so meticulous, understand that if more than 2% of the mortgages the lender makes would default the lender can loses money. Foreclosures are at the 10% range or more and lenders are losing billions of dollars. Many have gone out of business and many have ceased all lending operations. Those who are lending will require full disclosure and all i’s dotted and all t’s crossed.

Step 1 Qualification.

Before you purchase a home or refinance an existing home it is best to be qualified by a loan officer. This process is a matter of the loan officer discussing your income, assets and credit and determining to the best of their ability whether you will “qualify” to do what you want to do. Some loan officers pull your credit and some do not. Some loan officers ask for pay stubs, W’2s, tax returns, bank statements, and other supporting documentation. Others do not. Yes it is best that your loan officer gets as much information as possible to determine your qualifications for what you are trying to do. But, whether they do or not at this stage the loan officer is only offering their opinion as to whether you meet the criteria for the particular loan program you wish to apply for.  Some times in this stage the loan officer will issue you a letter expressing their opinion of your qualifications. This Pre Qualification Letter is nothing more than the loan officers opinion. When you work with a seasoned experienced loan officer, they are generally on target when they pre qualify a borrower, but there has been no verification and there is no lender commitment behind a pre qualification.

Step 2 Pre Approval.

More thorough than a pre qualification and more work is done to ensure accuracy a pre approval happens when a loan officer does one or two things. A loan officer can submit your application to be run through an automated underwriting system to determine if you qualify. The system will issue a conditional approval based on the information input into the system. The conditions of the approval are specific things that must be verified in addition to the information submitted. This means the accuracy of the application information has not been verified or validated but based on the information submitted the customer would be approved for financing.

The second thing a loan officer could do is collect income, asset, and credit information along with the completed application and submit that to underwriting. The underwriter is the person that issues the final approval and they would review the file and the automated underwriting findings and issue a conditional approval. This would still be a conditional approval and nothing has been verified or validated but an underwriter would confirm it meets the general guidelines before issuing a conditional approval. Most lenders no longer offer this service. First it takes underwriters away from approving real applications. Secondly, there are so few programs available that the need for an underwriter to review conditional approvals is much less.

When you are buying a home most sellers require a pre approval before they will accept your contract to purchase their properties. Because a pre approval is based on information not verified or validated it is important to understand that your loan is not approved until all information has been verified and validated by the processor and the underwriter reviews and approves your loan.

Step 3 Processing.

Truthfully, for a pre qualification or pre approval you have not submitted an application and are just trying to determine whether or not you would qualify to purchase or refinance your home or investment property. Not until an application is submitted with all necessary documentation will it be processed, verified and validated. This is the job of the processor. The loan officer originates the application and acts as your consultant in the process. The processor actually verifies all of the information and gathers all necessary documentation to submit the file to underwriting.

The processor:

1. Makes sure the application is complete.
2. Makes sure the loan officer collected all necessary documentation from the borrower.
3. Verifies the credit and documents any questions that the underwriter might have, including letters of explanation for derogatory credit and recent credit inquiries.
4. Verifies income and employment. This is done at the time of application and sometimes just prior to closing.
5. Verifies assets. Determines if there are enough funds for down payment, closing costs and reserves. The funds must be sourced (where they came from) and seasoned (how long they have been in accounts) for 60 to 90 days.
6. Verifies the property. This includes making sure we have appraisal, title commitment and home insurance and PMI insurance. The processor no longer actually orders the appraisal unless she works for the mortgage banker actually lending the money on the transaction. An appraisal can not be ordered until 3 days after a complete file is submitted by the borrower and the initial disclosures have been sent out by the mortgage banker that funds the loan. This is so important as the process stops until the client submits all of their income and asset documentation. This is mandated by federal law! The seller orders title on a purchase, it is important that they order the title and submits it to the mortgage company as early in the process as possible. The title must be reviewed by the underwriter and the invoice for title charges must be submitted as soon as possible. The borrower should get quotes and choose his home insurance company as soon as possible so these costs would be included in the final estimate of closing costs which is submitted to the borrower at least 3 days prior to closing.
7. Initial disclosures. At the start of the application, within 3 days, the good faith estimate of closing costs along with other disclosures must be submitted to the borrower. During the processing, verification and validation of the loan if anything changes as to the terms, loan amount, interest rate and or closing costs (whether charged or determined by the lender or not) the processor will re disclose the final numbers at least 3 days prior to closing. This means there will be no surprises at the closing table.

Step 4 Processing Notes.

There are many variables that are hard to be explained here because there are so many what if’s. These quick notes will help your loan process go smoother.

• All statements submitted should include all pages.
• There are additional approval requirements for condominiums and PUDs.
• The loan programs such as FHA, VA, 1st time home buyers all have additional criteria.
• Rehab loans and first time home buyer loans will take longer to process.

Step 5 Underwriting.

The underwriter is the person that makes the final determination of whether the loan is approved or not. It is their responsibility to determine if the loan meets the specific strict guidelines. There is not a lot of wiggle room today, but a good loan officer and processor can present a deal in its best light to help get an approval. When a loan is submitted to underwriting it should have been fully processed with the automated underwriting approval and all income, asset, credit, and property conditions verified and validated. When an underwriter approves a loan they issue a Commitment Letter with conditions. This is not a clear to close. It is a approval that the lender will commit to close if certain conditions are met. Even with all of this done the files are usually approved with conditions. Many conditions can be anticipated and eliminated in processing, but some like the appraisal are not cut and dry and requires underwriter review. Most files are processed sent to underwriting and then sent back to the processors after the underwriter approves the file with conditions. The processors then clears all the conditions before resubmitting the file to underwriting. Assuming all conditions are cleared the lender issues a Commitment Letter Clear To Close. Even this approval will have minor conditions to be cleared at the closing table.

Step 6 Closing.

After the loan is completely cleared to close the file sent to the closing department and the final disclosures are sent to the borrower, at least 3 days prior to closing. The closing departments prepares the closing package and sends the documents with all necessary documents to closing or escrow.

In a “wet state” at closing all disclosures are signed and every condition is met at the closing table and sent back to the lender for approval. Once the closing department approves everything the wire the funds (generally the funds have already been wired to the closing) and authorize a disbursement of the funds. If this is a refinance of an owner occupied property the buyer has a 3 day right of rescission which allows them 3 business days to cancel the loan. On purchases and non owner occupied properties the loan disperses immediately.

In a “dry state” the loan is dispersed once all conditions have been clear. This allows the loans to go to escrow upon an initial underwriter approval and once the conditions are cleared the loan will be dispersed. Whether your property is located in a dry state or a wet state determines the laws and procedures that are followed. It is not based on a choice by the borrower.

This is the general process from pre approval to funding. Sure all deals will have there own minor wrinkles and this is what your loan officer can help you with. It is good to talk to them once a week and whenever a major even occurs like the appraisal being complete or the loan coming out of underwriting. Today a standard loan takes 45 days with no problems. If there are issues it can take 60 days or longer to close a transaction. 15 day closings are thing of the past and if they do happen they are very rare. Contact your loan consultant if you have any questions about this mortgage process.

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