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Having a thorough understanding of how the loan process works will cut down the anxiety of purchasing a home. It will help you keep a realistic time frame in mind concerning how long it will take to close your loan, as well as all things involved by all parties to make home ownership come true.
Feel free to read it all, or use these links to jump directly to a topic:
Get Qualified / Get Pre Qualified, Obtain Loan Approval, Close The Loan
Get Qualified
Getting qualified before you apply for a loan can help you understand how much you can borrow.
When buying a house, you may get pre-qualified or pre-approved. You can typically get pre-qualified over the phone or on the Internet in minutes.
A pre-qualification is not as beneficial as a pre-approval where you would go through a more rigorous process including verification of your assets, credit, income, and liabilities. It is highly recommended that you get pre-approved before you start looking for a house.
Some of the advantages are:
- Find out how much house you can afford, to ensure that you are only looking at houses that you can afford. Do not look at houses outside of your price range! This will make it very difficult to find a house that you really like, once you start looking at houses you can afford.
- Getting Pre-approved could be used as leverage when it comes to positioning during negotiations with the seller. Being pre-approved verses being pre-qualified makes a big difference.
- Getting Pre-approved expedites the closing of your loan once you have found the house you want.
Obtain Loan Approval
Steps of Loan approval:
- Credit history verification
- Employment history verification
- Assets including your bank accounts, stocks, mutual fund and retirement accounts
- Property appraisal evaluation
- Verification of rental or mortgage
Based on your specific situation, additional documents or verifications may be required. To improve your chances of getting a loan approval:
- Fill out the loan application completely.
- Respond promptly to any requests for additional documents. This is especially critical if your rate is locked or if you plan to close by a certain date.
- Do not make any major purchases. Do not buy a car, furniture or another house till your loan is closed. Anything that causes your debts to increase could have an adverse effect on your current application.
- Do not move money into your bank accounts unless it can be traced.
- Do not go out of town around the closing date. If you plan to be out of town when your loan is expected to close, you may sign a power of attorney, to authorize another individual to sign on your behalf.
- Once you have submitted all information to your mortgage professional, they will in turn submit a complete package to the lender. From this point your loan is in underwriting. The underwriter will review and verify your loan appraisal and approve or deny your loan. After the loan stipulations have been cleared, a package is sent to the closing attorney office, where the closing process will be scheduled to take place. You can read about the closing process in the section below
Close the Loan
Here is a detailed list of items that you will need to provide to your mortgage professional to get your loan submitted to a bank.
- If you are buying or refinancing a home
- If you are salaried employee: provide two years W-2 and one month of pay stubs OR if you are self-employed: provide two years of tax returns and a YTD profit and loss statement.
- If you own rental property, you will need to provide rental agreements and two years of tax returns.
- To expedite the approval process, provide three months of bank statements for each bank, stock and mutual fund account.
- Provide recent copies of any stock brokerage or IRA/401K accounts that you may have.
- If you are requesting a cash-out refinance, provide a letter explaining what you plan to do with the proceeds.
- Provide a copy of divorce decree if applicable.
- If you are NOT a US citizen, you will need your green card (front & back), or if you are NOT a permanent resident provide us with your H-1 or L-1 visa.
- If you are applying for a home equity loan
- If you are salaried employee: provide two years W-2 and one month of pay-stubs OR if you are self-employed: provide two years tax returns and a YTD profit and loss statement.
- If you own rental property, provide rental agreements and two years of tax returns.
- Provide a copy of the note on your first mortgage. This will normally be found in your closing loan documents.
- Provide a signed letter explaining what you plan to do with the proceeds.
- Provide a copy of divorce decree if applicable.
- If you are NOT a US citizen, you will need your green card (front & back), or if you are NOT a permanent resident provide us with your H-1 or L-1 visa
- If you are buying commercial property
- Previous 2 years and year to date Income and Expense statement, or income tax statement for previous 2 years are required.
- Rent Roll (multi-family) or Lease Summary (commercial) including square footage of units.
- Copies of leases (if commercial) Rental Agreements (if multi-family)
- Property description including age, construction type, square footage, amenities.
- Location Map (from a Thomas Guide).
- Color Photos:
- (a) Front/ Rear of subject property
- (b) Street scene
- (c) Neighborhood
- Borrower Information
- Current Financial statement of borrowing entity and each principal.
- Profit & Loss statement if owner/ user.
- Use of loan proceeds.
- Original purchase information (if refinance).
- Previous 2 years tax returns (if available).
- Copy of purchase contract (if purchase).
- Credit Authorization / Current credit report.>li>Broker Fee Agreement with Borrower / Borrowing entity.
After your loan is approved, you will be required to sign the final loan documents. This will normally take place in front of a notary public. Be prepared to:
- Bring a cashiers' check for your down payment and closing costs if required. Personal checks are normally not accepted.
- Ensure that you have secured home owners insurance (before you come to closing). The home owners' policy must include the mortgage company's mortgage clause (provided by the mortgage company).
Ensure termite inspection is performed. (You should actually request this in your sales contract).
- Review the final loan documents. Ensure that the interest rate and loan terms are what you were promised. Review the "Good Faith Estimate" Verify that the name(s) and address/addresses on the loan documents are accurate.
- Sign the loan documents.
Your loan will normally close shortly after you have signed the loan documents. On refinance or home equity loan transactions, federal law requires that you have 3 days to review (right of rescission) the documents before your loan transaction can close.
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