A typical mortgage transaction may generally span between 30-45 days from start to finish. To help you keep your footing we’ve outlined the main steps here so you’ll have a good reference of where you stand and what to expect along the way.
This is the fact-finding and preparation phase prior to an actual application to the bank. Your loan officer will take a preliminary examination of your income, assets, and credit history to determine how high of a loan limit you may qualify for. Your officer will also be inquiring about your personal needs so that he can offer you loan options and rates that best suit your situation. Once a preliminary review has been completed you may be issued a pre-approval certificate which will prove your creditability to sellers or property you offer to purchase.
Application & Disclosure
Day 1-5: Once you have completed the prequalification process and you have found a property to purchase, it’s soon time to submit for loan approval. Your loan officer first will be making preparations with the title and escrow company (chosen by seller) and preparing your loan application and mandatory disclosures. These include the Good Faith Estimate (GFE) and a Truth-In-Lending Statement (TIL) which describe your estimated closing costs, proposed loan amount and interest rate. Once you have reviewed and signed off on these documents you are ready for loan submission. It’s important to know that these loan terms are not necessarily finalized, but rather preliminary estimates.
Loan Set-Up & Underwriting
Day 6-10: Once your loan has been submitted to the lender it may take one or two days before your file is put in “set-up.” At this stage a processor will make sure your file is complete and that it is ready to be reviewed by an underwriter. For consumer protection the bank will often provide more disclosures via email to confirm the application. Then your file will be sent to underwriting, where a determination will be made if your application fits all lender guidelines. Generally, the underwriter will verify the applicant’s assets and source of the down payment, his job history and income compared to the minimum monthly debt obligations combined with the proposed new housing expense (PITI), and that the subject property has a clean title. If all looks correct, the underwriter will issue a “conditional approval,” and you’ll be one step closer to owning your home.
Day 8-17: Once your loan has been successfully sent to underwriting, your loan officer will schedule a home appraiser to examine and determine the “comparable” market value of the subject property. A certified appraisal report is a condition of every lender, as their lending limits will be based on the market value of the property rather than the agreed purchase price. Once the appraiser has visited the property is usually takes 2-5 days to receive the completed written report. Very often this is about the same time your conditional approval is being issued by the bank.
Day 17-22 Once your loan application has been issued an approval, the lender will have “conditions” to fulfill before issuing loan documents. Some of these are for escrow to handle, and usually there are a few for the applicant. Customary conditions include set up of homeowners insurance, updated paystubs and asset statements, and signed letters of explanation (LOE) regarding unusual bank deposits and credit inquiries. These conditions are largely to determine there has been no major changes to the borrowers employment and financial situation since the inception of the loan application. The lenders also need to verify that no undisclosed funds were “borrowed” to make the home purchase possible.
Day 18-24: Once all conditions have been met and signed off by the underwriter, and your interest rate and loan amount have been “locked” in, the lender will issue loan documents. Amongst other, this includes your estimated settlement statement (HUD), your Note (promise to pay) and the Deed of Trust. These documents are typically signed in the escrow office, or by a certified notary public document signer coming to your home or office. Your loan officer may or may not be present at the signing, but should avail himself by phone should any concerns be addressed.
Day 25-31: Once loan docs have been signed and notarized, and any remaining funds outstanding “due to close” by the borrower have been wired into escrow, the escrow officer will return the documents to the lender who examines them and, if everything is in order, arranges for the funding of the loan. Once the loan has funded, the deed of trust will be recorded with the county recorders office, and the property is then transferred to its new owner. Escrow will immediately prepare and send the final settlement costs on the HUD-1 Settlement Form to both buyer and seller.