In my previous column, we were looking at the steps of a mortgage “pre-approval.” With a pre-approval in hand, you are now officially able to shop for and make offers on properties. The process can be daunting and confusing, so it is always a good idea to have a trusted real estate agent help you along the way. When the news comes in that your offer has been accepted, the mortgage process takes a shift. Once you provide your loan officer with the property address, they generally have a complete application. By law, this triggers several disclosures, or documents, that will be delivered to you. Thanks to modern technology, this generally happens electronically. One of the important documents you’ll receive is what is known as a “Loan Estimate.” This document breaks down the fees, charges, points, and more, as an ESTIMATE. The loan estimate is an important document so it’s a good idea to review it closely, and compare it to your “Closing Disclosure,” which you usually receive later in the loan process. The Consumer Financial Protection Bureau, or CFPB, has an excellent Loan Estimate Explainer that can be found here: https://www.consumerfinance.gov/owning-a-home/loan-estimate/
Once you’ve reviewed, signed (or eSigned) your documents, and submitted any additional information, your loan will officially be submitted to underwriting. This next step is where the lender’s risk-assessment (underwriter) staff reviews your entire file. Behind the scenes, the loan officer (or their assistant or processor) has also ordered title work from the title company, may be coordinating the property appraisal, and will keep you and your realtor advised of any important milestones in the process. If an appraisal is required, that can always be a nail-biting experience. A trained property appraiser will assess your property and compare it to similar sold properties. If the appraised value comes in above the sales price, there usually isn’t an issue, however if the appraised value comes in below the sales price, the lender will only lend based on the lower value. This can cause what’s known as an “appraisal gap.” In today’s seller’s market, many buyers are offering to bring additional cash to closing should there be an appraisal gap. Your realtor should help you structure your purchase offer to best plan for this contingency.
During their review of the loan, the underwriters will be looking over your credit report, financial statements, and more. If the loan officer reviewed the documentation sufficiently, they should have already obtained most of the items the underwriter needs. Often there are some supporting documentation that may be needed prior to the loan being “clear to close.” For example, if you are selling a home and need the proceeds of that sale to purchase a new home, the new mortgage may be contingent on proof of the sale. These contingencies in the mortgage world are known as “conditions.” Your loan officer, or their processor, should work with you to clear conditions. It is in your best interest to respond to these requests quickly to help underwriting go as smoothly as possible.
After all the title work is completed by the title company, the insurance is in place, the appraisal done, and underwriting complete, your loan can be cleared to close. All that’s left is to sign, sign, sign, and sign some more on closing day. Remember that loan estimate you received when you began the process? You’ll be getting a closing disclosure prior to closing. Compare the two documents. The two should match pretty closely, and there are laws to protect consumers from increases in some of the fees. Your loan officer should be able to walk you through your closing disclosure and explain each item and section.
A mortgage is a marathon, not a sprint, but an experienced loan officer on your team can help you reach the finish line!