The Home Buying and Mortgage Approval Process

So let’s talk about each step in more detail

1 – GET PRE-APPROVED 

Pre-Approved (not prequalified): Take a minute to review our Mortgage Glossary we have the defined the difference between a pre-approval and a pre-qualification. Ensuring all your documentation regarding your credit, income or assets should be reviewed by an underwriter. Ultimately it is the underwriter who determines if you qualify! So get pre-approved not pre-qualified!

We suggest you always start by reviewing loan options and standard required documentation with your loan officer. The Loan Officer however does not have the ultimate credit authority to approve your home loan. While your loan officer can provide a pre-qualification, basically tell you based on your credit report and the information in your application if they believe you should qualify, it is not the same as being approved by an underwriter for the home loan or mortgage you are seeking.

To get pre-approved you will provide documentation to verify or prove your income, funds for down payment, closing costs and possibly reserves. There may be other documents needed as well. Our advice is to be respond to request for documentation immediately. 

The underwriter may have additional questions or need additional documentation or see things the same way. Ultimately it is the loan Underwriter that will approve or deny your home loan application.  

2 – Make an Offer

Shopping for a home can be fun and stressful. Depending where you live, you may find that you have to make several offers before your offer is accepted. It can be very disappointing to not be able to that perfect home.

Here, your real estate agent is invaluable at helping you negotiate. They can help you determine what the market value of the property is to ensure your offer is fair and not too high or too low.  They also help you with all the terms of the purchase. 

We always suggest you have a home inspection completed. Whether you are buying the home “as-is” or can negotiate with the seller fix items before closing, it is always good to know what the concerns are – eyes wide open. 

You will then be required to provide an earnest money deposit. This is a good faith deposit needed to create the consideration needed to create a valid contract. The earnest money becomes part of the down payment if you are using a mortgage to provide most of the home financing.  The earnest money usually is provided in the form of a check or cashiers check. The contract will disclose who will hold the earnest money. 

Earnest money can be at risk if you do not perform as specified in the contract.

The deposit, down payment, and home loan amount should equal the total purchase price of the property. 

3 – Complete the Application

If you followed our advice in step one and took the steps to get pre-approved for your mortgage, then much of your application is complete. Now however you have the collateral or home you will be using as security for your home loan.

Under federal law, once the mortgage lender has six pieces of information listed below your application is considered complete.

1. Name
2. Income
3. Social Security Number
4. Address
5. Loan Amount and
6. Estimated value of the property 

Your pre-approval looked at your income and assets to determine if you could afford the mortgage and sufficient funds to close based on your estimate of a purchase price or mortgage amount but because there is no property chosen or known address the home loan application is not considered complete. 

4- Receive your Loan Estimate

By law, your mortgage lender must provide a Loan Estimate within three business days of receiving the six items above constituting a completed application. The Loan Estimate (LE) details the terms and costs of the home loan. 

You should review this carefully to ensure the information was as discussed with your mortgage loan officer. 

The Loan Estimate is three pages will provide information like the type of mortgage, the amount of the mortgage, the mortgage payment, an itemized list of closing costs and the cash you will need at closing to complete the transaction. 

Should there be a change in circumstance during the processing of your mortgage application, the lender will need to send a revised Loan Estimate within three days of the change. Usually this means an increase in costs associated with something that was uncovered or that you locked your loan and they must provide the Loan Estimate showing the loan terms (rate and costs) are locked.

5- Conditional Approval

If you obtained a pre-approval the conditions of the approval should be minimal and will allow for a fast and smooth closing. However, things may have changed or a significant amount of time may have passed where the documents are aged and no longer can be used or new documents needed. For instance, if you were pre-approved in March of 2018 and did not find a home until say July of 2018, you may not have provided your 2017 tax returns which may now be needed.

Of course, the mortgage lender will now need the purchase contract, appraise the home and title work obtained and reviewed for accuracy and completeness. 

Should the mortgage lender request any additional documents from you it is very important your provide them in a timely manner. Delays can cause a missed closing and jeopardize your earnest money! 

6- Receive your Closing Disclosure

By law the Closing Disclosure must be provided and received by you the borrower no later than three days prior to closing or what is called consummation. 

The Closing Disclosure is much like the Loan Estimate however it is five pages long and has additional information on it such as the business contacts used throughout the transaction such as the lender, mortgage broker if used and settlement agent. In fact, the formats are similar to help borrowers review the terms and ensure they are in line with the original terms and costs agreed upon. 

This initial Closing Disclosure is meant to be an extremely accurately reflect the transaction, costs and the cash you will be required to bring to closing.

7- Attend the Closing

Congratulations, you are buying a new home! At the closing you will be required to sign a significant number of documents, most importantly the promissory note and the mortgage or deed of trust that gives the mortgage lender the property as security in exchange for the monies they provided for your home loan.  

You will have to bring in a certified check or cashier check for the funds needed to close. Usually the funds needed are the amount of the down payment, less the earnest money already provided plus the closing costs associated with the transaction. 

In most states you will have possession and receive keys that day. However in some states this happens a day or so later. For instance the Deed of Trust must be recorded before the mortgage proceeds are disbursed and you can take possession. 

You have the keys, you have possession, enjoy, live, love and grow in your new home!