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Although we try
to make it simple and easy for you, obtaining a mortgage
loan is not a trivial process.
Here we explain the ins and outs, the paths and pitfalls
of the process. You may see very little of these goings-on
but understanding them can't hurt.
The Traditional Loan Process
To be complete, and to take the mystery out of mortgages,
we have described the traditional path here. Most of these
things will be going on behind the scenes while you relax
and think about your new home or what you will be doing
with the cash from your refinance.
Analysis
Your loan application is submitted through your loan officer,
who becomes your representative in the loan process. It
is to the loan officer's advantage to get you your loan,
since the officer's compensation is based on loans successfully
completed. Your loan officer assembles the documents in
your file, and reviews your file with two things in mind:
Do you indeed qualify for the type of loan you want, and
will it pass smoothly through the underwriting process.
Essentially, the loan officer must "pre-underwrite"
the loan to make sure it will pass muster.
Packaging
The loan officer puts all the collected documentation in
order, anticipates any unusual circumstances that may affect
your loan approval, and writes a cover letter to the lender
that emphasizes your strong points and "sells"
you as a borrower.
Once
your loan package is put together with all appropriate notes,
it goes to your loan processor, who will order any additional
information the lender may need. This may include, for instance,
verification of your bank balances, employment, and mortgage
or rental payment history.
These
items take about a week to gather, after which your loan
is ready to submit to a lender. Your loan officer will then
reconfirm your original intentions about your loan program.
If you have not already locked in your loan, the officer
will review the direction of interest rates with you, and,
if rates are rising, may suggest you lock in your loan now.
Submission and Underwriting
Now, your loan is submitted to a lender. The lender sends
it to the underwriting department, which reviews the file
for compliance with the guidelines specific to the program
you have selected, and assesses whether or not you are a
good credit risk. The underwriter is the first, but most
important, gate through which you must pass to loan approval.
One
of four things can happen here:
If
you are not qualified for the program, you are declined.
This should be a rare occurrence if your loan officer has
done his job properly.
Your loan is put in "suspension." It is not approvable
in its current form because there are some important questions
about the interpretation of your loan package. However,
we are given a chance to address those questions, and the
implication is that the loan will be approved if the questions
are addressed in a satisfactory manner.
You are approved and ready to go, with no further conditions
or questions. This is rare, too, as each underwriter focuses
on different areas, and though they want to make as many
good loans as possible, it is their job to question your
file.
By far the most common outcome is that you are conditionally
approved subject to meeting certain well-described conditions.
For instance, if you are purchasing a home and getting a
gift from relatives to help with the down payment, the lender
may want to see a letter from the donor certifying that
it is indeed a gift and no repayment is expected.
Response and Action
If your loan has been declined, the loan officer will review
the package to determine if it can be modified - repackaged
- to get an approval somewhere else.
If
your loan is suspended, your loan officer and processor
will help you gather the documentation or information needed,
and submit that to the lender to get approval.
If
your loan is approved without conditions, it's time to lock
your loan, send documents to the title company, and go sign
papers!
If
your loan is approved with conditions, your loan officer
and processor will work with you to gather those items with
which he needs your help, while your loan processor will
gather those items having to do with title conditions or
in which you do not need to get involved.
Responses
to conditions are submitted back to the lender. The underwriter
reviews each response to see if it satisfies the condition,
and "signs off" on the conditions one by one.
When all the conditions are satisfied, your loan is fully
approved and the lender is committed.
Sign-Off
At approval, a title company company becomes heavily involved.
The title company is a neutral third party that, for a fee,
holds all the documents and funds in escrow, and ensures
that all parties get what they say they want, or points
out where differences lie so the parties can resolve them.
The
loan officer checks with you to find out when you would
like to sign the loan papers. Documents are then ordered
from the lender to be submitted to the title company, giving
the title company at least 24 hours to review the documents,
comply with the lender's instructions, and draw up the papers
for your signature. Please exercise your wrists and forearms
during this period; you will need strength for signing.
Funding
Once you have signed the papers, the title company sends
the completed papers back to the lender for funding approval.
In this process, the lender confirms that all its instructions
to the title company were followed, and approves disbursement
of the funds.
If
this is a purchase transaction, funds are wired to the title
company.
If
this is a refinance transaction, you have a three-day right
of recission. Yes, that's right, you have three working
days (Saturdays included) to say "Oops, I didn't want
that!" Once that period is up, you are assumed to want
the loan, and the lender sends the funds to the title company.
Recording and Close of Escrow
The title company, once funds are received, reviews the
file one last time to verify that all instructions are clear
and consistent, and that all parties are in agreement.
The
title company then disburses funds strictly per written
instructions. The next day, they record all the legal documents
that have been executed, and record a reconveyance on all
old liens. Once the new loans (and the grant deed in the
case of a purchase) have been recorded, the loan and the
escrow are considered closed.
Click here for more information about the Mortgage Process.
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