Inspired by a post by Martha Brown, a wonderful Maryland Realtor on what happens on the Realtor side once a client wins a contract. I bring you....
Now I have a contract...What happens now?....A loan officer's view.
CREDIT: Your credit report will have already been reviewed before the pre-qualification letter is written. Now is the time to make sure that there are NO material changes to your score. This means:
•1. Continue to make all payments on time
•2. Do not apply for or open ANY new credit
•3. Do not buy any big ticket items using available credit, if you are not sure if a purchase will affect your score, ask your lender PRIOR to making the purchase
•4. Do not pay off anything that your lender doesn't tell you to pay off
•5. Do not DISPUTE any items on your report, this can delay settlement
APPLICATION: This is the beginning of the contract between you and your lender. You will sit down* with your lender to sign the completed loan application and all required disclosures. Your lender will explain all documents so that you can understand exactly what you are signing. This is the time to ask for clarification on anything that is not clear or that you don't understand. It is important that all information is complete and truthful. Be ready, the loan package is extensive, in a typical loan package there are at least 100 pages.
*Please note, if you are not dealing with a local lender, you will probably be sent the loan package in an overnight package or by email. In this case, it will be extremely important to read each page very carefully to ensure that you fully understand each document.
PRELIMINARY VERIFICATION: The lender will ask you for documentation to support items presented in the application. Many of these documents may be updates from the pre-qualification
•1. Income
•a. At least 2 consecutive pay stubs covering 30 days of income for all parties to the loan
•b. Social security/Disability Award Letter -most recent
•c. W-2's for the previous 2 years
•d. Tax returns if you are self-employed, or there are any non-reimbursed business expenses or Schedule C income/loss
•e. Documentation of receipt of child support/alimony payments
•2. Assets
•a. Bank Statements - 2 months (all pages)
•b. 401K (Most recent 2 months, or quarterly statement-all pages)
•c. Gift Funds for the down payment or closing cost-Gift Fund Affidavit (lender will provide form) and documentation the donor's ability to gift as well as a "Trail of Funds". The trail of funds is proof of the funds coming from the donor's account into your account.
•3. Identity
•a. Driver's License
•b. Social security card
Appraisal Ordered-The appraisal is done to determine the value of the home by comparing recent sales and listing of homes within close proximity and most like the subject property (the home you are buying). Depending on the type of appraisal, the appraiser may require repairs to meet certain loan guidelines. If repairs are required, the repairs will need to be completed (by the seller). The appraiser will complete a final inspection (at the buyer's cost, usually $100) to verify the completion of the work.
Title Work Ordered -The title company will send an abstractor to the court house to determine:
•1. if the seller has a saleable interest in the property (the right to sell)
•2. if there are any use restrictions on the property
•3. if there are any liens (mortgages, unpaid taxes, mechanic's liens, etc.) on the property that will need to be paid off at closing.
2nd Level Verification- The lender will verify submitted documentation through:
•1. Verification of employment -
•a. Telephone-calling your employer to verify that:
•1. you are employed,
•2. your length of employment
•3. probability of continued employment
•b. Written-fax or email lender form to employer to verify above information as well as:
•1. Current and previous income for previous 2 years breaking down by base, overtime, bonus, etc.
•2. Most recent raise and amount
•3. Projected raise and amount
•2. Verification of Deposit -verifying asset accounts, may be used instead of bank statements
•3. Credit-
•a. An explanation of inquiries into your credit and any derogatory credit may be required. The lender wants to know if any new credit has been opened as a result of an inquiry that may not be showing up on your credit report. They also want a good explanation for late or missed payments, collections, judgments, bankruptcy, etc. to determine if you are a good credit risk. With a good explanation (medical event, unemployment, death of a loved one, divorce) many lenders will be able to see that the negative credit was a result of a one-time event or mistake and not a prediction of future credit handling.
Loan officer will work with you to clear up any discrepancies in the information provided.
SEMI-FINAL VERIFICATION: All paperwork will be gathered and placed in an order that will allow the underwriter to easily review and confirm.
The bank will review the documentation provided and mail out investor/legally required disclosures to the borrower outlining the terms of the loan. These will probably not be the final disclosures.
REVIEW TITLE AND APPRAISAL: Upon receipt of the title and appraisal, the loan officer/processor will review and determine if additional items or repairs are required. If so, this is communicated to the borrower and/or realtor.
HOME OWNER'S INSURANCE: The loan officer/processor will call the homeowner's insurance agent of your choosing to ask them to add the lender's mortgagee clause to your policy and ask for a paid receipt or invoice.
CONDITIONAL APPROVAL: As long as everything in the loan package meets the guidelines for the bank's investors, the underwriter will provide a conditional approval to the lender.
The loan officer/loan processor will work with the client (borrower), appraiser, title company, realtors, homeowner's insurance agent to provide the information to allow the underwriter to clear any final conditions.
The loan officer will provide any final required disclosures to the borrower for signature finalizing the loan amount, rate, fees.
FINAL VERIFICATION: All final underwriting conditions are sent to the underwriter for review.
Final approval is given by the underwriter, file sent to the closing department.
CLOSING: Closing department reviews the loan package to ensure they have everything they require prior to closing. All closing conditions are sent to the closing department for review, updates if any are completed and your closing is scheduled.
Closing is coordinated between the borrower, closing agent, lender, as well as realtors and sellers if a purchase.
You meet with the closing agent to sign the lending bank's packet that will look very similar to the original application package with additional lender specific forms. The title agent will review the entire loan package to confirm that you understand everything you are signing. At this point, this should go fairly quickly as most of the documentation will be duplicates of the original package you went over with your lender. If you don't understand something or it is different than presented by your loan officer, ask questions.
Hopefully now that you have reviewed the process of getting your mortgage loan to the closing table, you have a better understanding of "What happens now?"
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