The Loan Process
Choosing a Loan Program
The first step in getting a loan is deciding what kind of loan is best for you.
When you apply for a loan, you'll need to have a program in mind so the lender can prequalify you for a specific interest rate and term (the amount of time you want to spread the payments over). Many lenders used the terms "preapprove" and "prequalify" interchangeably. You can change your mind about your loan program after you apply - but let your lender know as soon as possible.
Picking An Interest Rate
The first reaction a lot of people have to this step is to say "the lowest one!" There are other factors to consider and the lowest interest rate may not always be the best way to go.
Applying For A Loan
You can apply for a loan after you have already signed a contract to purchase a home or before making an offer, if you would like to have a pre-approved loan before you submit offers.
When you submit your application you will have the option to either lock-in the current interest rate and points for periods ranging from 10 days to 6 months or you may elect to float the interest rate with the market and lock-in at a later date. If you elect to lock-in, the interest rate and points on your loan will be fixed for the period of the lock-in regardless of changes to interest rates in the market either up or down. If you elect to float, the interest rate on your loan will be determined by the interest rates available when you do choose to lock-in and could be either higher or lower than the interest rates available on the day you apply. We recommend careful consideration in making this decision.
When you apply for your mortgage the lender may ask you to pay an application fee. You may also be asked to pay a credit report fee and/or an appraisal fee.
That's it! You're done for now and on your way toward the settlement of your new mortgage, which can occur in as little as 30 days (or less!) at the office of the settlement agent you choose.
Getting Pre-Approved
You can be preapproved for a mortgage before you find the house you want to buy. Getting preapproved may make you a stronger buyer in the eyes of the seller because the only step remaining in the mortgage process is to have the property appraised. Also, once you are preapproved you'll know the maximum price you can afford to offer for a house.
Processing the Loan Application
To "process" a loan is to make sure that all of the required documentation has been obtained and checked to ensure the conditions stated in the preliminary approval are met.
Upon receipt of your file, the lender will order an appraisal on the subject property. Within three business days you will be sent a complete set of mortgage disclosure documents by your lender. These documents will include a Good Faith Estimate of settlement charges, a Federal Truth-in-Lending Disclosure, a Mortgage Program Disclosure and other information and documents pertinent to your transaction.. You should carefully review these documents for accuracy; contact your lender directly to answer any questions.
Within the first week after you apply for a mortgage two other events should occur. First, an appraiser hired by your lender should have made an appointment with you or your real estate agent to perform a physical inspection of the property. Second, the services of a licensed settlement agent to perform the settlement and escrow process willbe engaged.
Once the appraisal, credit report and completed disclosure and documentation package is received, your lender will prepare your loan for submission for final approval.
The Credit Decision/Final Approval
The underwriter will review and analyze the processed loan package and either approve, deny or suspend your application for a loan. If mortgage insurance is required for your loan, the underwriter will also submit the loan package to a mortgage insurance company for review. In reaching a decision on your application, the underwriter will take into consideration your income, credit, cash reserves and the property itself.
The underwriting process usually takes less than two days to complete. Oftentimes, buyers want to be approved before they find a property to buy.
Funding your loan - A satisfying conclusion
The end of the lending process is usually called "settlement" because that's when everybody "settles up." Loan funds are either wired to an escrow account or the lender sends a cashier's check to the closing agent (in some states this may be a title company, in others an attorney or escrow agent). While at settlement you will read and sign numerous documents relative to the purchase (or refinance) of your property. Several of these documents will be familiar to you as they were provided to you in the initial package you received from the lender. Your settlement agent will be able to answer any questions you may have regarding these documents.
Most settlements take an hour or less to complete depending on the transaction.