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 Six Steps to a Mortgage
- Pre-qualification
" Prequalification" occurs before the loan process actually begins, and is usually the first step after initial contact is made. In a prequalification, the lender gathers information about the income and debts of the borrower and makes a financial determination about how much house the borrower may be able to afford.
- Application
The "application" is the beginning of the loan process. The buyer, referred to as a "borrower," completes a mortgage application with the loan officer and supplies all of the required documentation for processing.
- Pre-Approval
Once you have made an application, your lender will submit your file for automated underwriting. The automated underwriting systems will review your income, assets, liabilities, credit scores, loan-to-value ratios, and your proposed loan details.
- Processing
Processing of the loan involves ordering a property appraisal, ordering title insurance, mailing out requests for verifications of employment (VOE) and bank deposits (VOD) and any other documents needed for processing of the loan. All information supplied by the borrower is reviewed at this time and a list of items not yet received is compiled. The "processor" reviews the credit reports and verifies the borrower's debts and payment histories as the VODs and VOEs are returned. If there are unacceptable late payments, collections for judgement, etc., a written explanation is required from the borrower. The processor also reviews the appraisal and checks for property issues that may require further investigation.
The processor's job is to put together an entire package that may be underwritten by the lender.
- Underwriting
The underwriter is responsible for determining whether the combined package submitted by the the processor is deemed as an acceptable loan. If more information is needed, the borrower is contacted to supply more documentation. Further "conditions" may need to be met.
"Mortgage insurance underwriting" occurs when the borrower has less than 20% of the purchase price to put towards a down payment. At this time, the loan is submitted to a private mortgage guaranty insurer, who provides extra insurance to the lender in case of default.
- Closing
At the closing, the lender "funds" the loan with a cashier's check, draft or wire to the selling party in exchange for the title to the property. This is the point at which the borrower finishes the loan process and actually buys the house. In California, closings often take place at an escrow company.
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