Back in the good old days of the real estate boom, all you had to do was have a pulse and you'd get approved for a loan. Fast forward to the mortgage crisis, and many layers of fact-checking have been added to the mortgage process (as they should have been from the beginning) by regulators, Fannie Mae, Freddie Mac, and FHA (the national authorities who finance the majority of mortgage loans).
Lenders go through a 5 step process from the time they meet the borrower to the time the transaction is closed, and they need a whole lot of paperwork along the way. So borrowers, start getting your ducks in a row and be ready for your loan officer at every stage!
Stage 1: Pre-approval
At this stage, you'll need to provide all income and asset documentation to determine whether you qualify for a mortgage. Documentation required include:
* Most recent federal tax return
*The last 2 months of bank and investment statements (all pages, all accounts)
Your credit will be reviewed and the loan data will be put through underwriting. The loan officer will then issue you a pre-approval letter to take you your Realtor. Because it may be a while from the time that the pre-approval is issued until the Buyer puts in an offer on a home, any changes that come up should be communicated to and checked out by the loan officer.
****From a Realtor's perspective, my firm will not take any Buyers out to see a property until we see a proper pre-approval letter that has taking all of these documents into consideration in issuing the letter. The advantage to you, the Buyer, is that you know what you can actually afford instead of guesstimating, and when you see a property you like, your offer won't be held up by waiting for a pre-approval.***
Stage 2: Full application
The loan is official at this point, and the loan officer will update any documentation already submitted (anything older than 90 days). The Buyer will be questioned on:
*Any credit issues on the credit repor
*Deposits that appear on your bank statements that are over $500 will require source documentation (excluding your pay checks)
At this time, a full mortgage application packaged will be completed by the loan officer and borrower at a sit down meeting.
Stage 3: Submitted to processing
The mortgage processor will now review the package that was submitted by the loan officer. The processor will order:
*Title examination and legal work
*If you're buying a condo, something called a condo questionaire to be sent to the appropriate party
If anything was missed by the loan officer, the processor will request documentation (four eyes are better than two). If anything is missing, it will hold up the process, so it's important that all requested documents back ASAP.
Stage 4: Submission to underwriting
Once the appraisal comes back, the processor orders a "Fraud Guard" report. This report reviews everything and everyone involved in the transaction to ensure that no party in the sale has been involved in fraudulent activity in the past. The borrower and their background, the appraiser, the attorney, and the property and real estate professional involved will all be looked in to.
The appraisal, the condo information, and all documentation thus far will also be reviewed. Any of these reports may trigger a request for additional documentation.
Stage 5: Underwriting:
The underwriter is responsible for reviewing the loan package and issuing the approval. This will be the third set of eyes (six is better than four!) reviewing all the details for compliance to all regulations and guidelines. The goal is to clear all conditions, but if there are any concerns that arise, the underwriter can approve the loan subject to additional documentation.
After loan approval
Even after you close, there are several more steps in the process where additional paperwork may be asked of the borrower.
1) In the week between the approval and the closing, the lender has to do a verbal verification of the Buyer's employment status. Any changes will require additional documentation.
2) The credit will also be "refreshed" to make sure that there's no new debt or credit that may impact the mortgage qualification. This may require additional documentation.
3) If any of the documents are older than 90 days, the loan officer will need update documents.
4) After the closing, the loan is re-reviewed by the end investor, and there may be a request for additional documentation.
Clearly this is a long and time consuming process, but as my Transaction Coordinator says, you're not buying a head of lettuce, you're buying a house. Although it can be a very frustrating and annoying process, please remember that your lender is just doing their job and it's vital that you work with them. It's important for borrowers to understand the process and the reasons behind it, so ask questions and keep communications open with your loan officer to minimize potential frustration. Hopefully with all the information at hand, you'll have a smooth and efficient lending experience!
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