This is What Happens When You Apply for a Mortgage
For many, applying for a mortgage is a confusing and stressful process. But it doesn’t have to be. Whether you’re a first-time homebuyer or are a current homeowner considering a reverse mortgage product, being well-prepared can make all the difference in your mortgage application process.
Not only should you research which home loan might be right for you ahead of time, you should also educate yourself on the steps of the process once you decide to apply for a mortgage. While your real estate agent or Open Mortgage loan officer will help to guide you through the process, here’s what you can expect once you apply for a mortgage.
Submitting your application requires extensive documentation and information gathering. You will be asked to provide the following information to your loan officer:
- Employment info: Name of current employer, phone and street address, length of time at current employer, position/title, salary including overtime, bonuses or commissions
- Income info: Two years of W-2s, Profit & Loss statement if self-employed, pensions, Social Security, public assistance, child support, alimony
- Assets info: Bank accounts (savings, checking, brokerage accounts), real property, investments (stocks, bonds, retirement accounts), proceeds from the sale of current home (if applicable), gifted funds from relatives (e.g. down payment gift for FHA loan)
- Debts & Past Financial Issues: current mortgage (if applicable), liens, alimony, child support, car loans, credit cards, real property, bankruptcies, collections, foreclosures, delinquencies
- Property info: Street address, expected sales price, type of home (single family residence, condo, etc.), size of the property, real estate taxes (annual), homeowner’s association dues (HOA), estimated closing date
After collecting all of the documentation above, your loan officer will relay your Loan Estimate. By law, you must receive it within three days of your application submission. A Loan Estimate includes closing costs, the interest rate and monthly payments (principal, interest, taxes, insurance). A loan estimate is neither an approval or a denial; it is simply a confirmation of the terms of the loan.
At this stage, the loan processor combs through the documentation you provided to the loan officer, assembles and organizes the loan file, and orders any outstanding reporting and reviews. This may include:
- Ordering a credit report (if not already pulled for a pre-approval)
- Verifying employment (VOE) and bank deposits (VOD)
- Ordering property inspection (if required)
- Ordering property appraisal
- Ordering title search
Once the loan processor verifies that all necessary documentation has been obtained, the loan file is passed on to the underwriter for approval.
Once the loan file reaches the underwriter’s desk, it’s decision time. The underwriter evaluates all documentation prepared by the loan processor, cross-checks the borrower’s eligibility against the loan package being considered, and conducts a deep dive into the borrower’s credit history.
After double checking for accuracy and risk of fraud, the underwriter will make an underwriting decision and either reject or approve the loan. With an approval in hand, you’re ready to lock in your interest rate, order your title insurance and move on to closing.
Loan documents are drawn, and the borrower has a three-day review period to compare the Loan Estimate and Closing Disclosure and verify that they would like to move forward with the loan.
At this point in the process, you’ve all but signed on the dotted line. The closing meeting may last several hours and will require lots of signatures. Below are some of the documents you should expect to review and sign:
- Closing Disclosure
- Promissory Note
- Deed of Trust
- Certificate of Occupancy (if applicable)
Closing costs may not be rolled into the loan amount, so talk to your loan officer about how you plan to handle the payment. Closing costs include settlement fees (the cost of doing the loan) plus any prepaid expenses (put in an escrow account) for homeowner’s insurance, mortgage insurance and taxes.
After all of the documents have been signed, and closing costs are settled, the title company will complete the mortgage recording and funding.