The Home Loan Process
The home loan process can be frightening, especially if you are a first-time home buyer. On the bright side there are many parties to help along the way. But it’s important to educate yourself on the steps for purchasing a home. Let’s talk about the home loan process from start to finish, so you know what to expect.
Estimate Your Budget
Before getting too deep in the home loan process, it is important to figure out what price range you can afford. This allows you to set reasonable goals when you begin to search for your next home. Think about a budget for a monthly mortgage payment and worry about finding your house later. Generally, it can be easier when you work backwards here.
Get Preapproved (24 Hours)
Now that you have a general idea of what your budget is, the next step is to work on getting preapproved with the help of a mortgage professional also known as a Loan Officer.
A preapproval letter, given to you by your Loan Officer, shows how much the lender has approved for you, which is important to do before looking at any houses.
Getting preapproved gives you a better chance of getting the house you want because it shows the seller you are eligible for a loan to purchase the house.
Make an Offer (1 – 4 weeks)
Now that you have preapproval, it’s time to start looking for a house to call home.
Next is to schedule “showings” for houses that you like, within your budget, and below your pre-approved amount. And once you find a home that meets all the criteria, then it is time to start make an offer.
It’s best to consult your Agent as they know what to do when it comes to structuring the offer. Be sure to voice any conditions you’d like to be completed before finalizing the deal.
Once in Contract
Congrats! You are now in contract, which means all the work you’ve done to get pre-approved and your efforts to view homes, and submit offers has finally paid off.
As for the “Real Estate Purchase Agreement” (RPA), or contract, this outlines the terms of the purchase between the seller and the buyer. Whereas the Loan Estimate (LE) outlines the terms of the financing between the buyer and the lender.
Now that you’ve got the hard part of getting into contract, out of the way, we can discuss the home loan process, and the steps to fund your loan.
Step 1 – Loan Officer Setup (24 Hours)
This includes updating the loan file with the subject property information including estimates on taxes, insurance, etc.
Regarding the borrower(s) it also includes updating any income or asset documentation since the initial pre-approval.
Following the setup, the Loan Officer will order the appraisal and prepare the loan to be submitted to the lender.
Step 2 – Initial Disclosures and Underwriting (2-3 Days)
Once the loan is submitted, the lender is required to disclose the rough terms of the loan, also known as Initial Disclosures. Generally, these will give you a good idea how the numbers will look but given the lender doesn’t have all the third-party fees yet, it could be slightly off until the Closing Disclosures.
Following the Initial Disclosures, the Processor (partner to the Loan Officer) will work to submit the loan into underwriting for full loan approval.
Whereas the Underwriter, working for the bank, on behalf of the investor (person or company funding your mortgage), is the person who is tasked with making sure we are meeting all the guidelines and that we qualify for the loan.
During this process, try to avoid making large financial changes, such as signing up for a new credit card, or making a big purchase like a car. Do not make any big purchases that could push you over your debt-to-income (DTI) ratio cap until your loan funds.
Step 3 – Conditional Loan Approval/ Underwriting Conditions (3-7 Days)
The underwriter will provide a list of specifications or requirements to achieve full loan approval. These are known as “conditions” or “prior-to-document conditions.” Once you’ve worked with the loan officer to clear all of the conditions by providing supplement documentation, then these will be sent back to the Underwriter for a final review.
Step 4 – Full Loan Approval
Once the Underwriter reviews your conditions, there are only a few more barriers to cross:
- A final analysis will be done by your lender, double-checking to ensure that your documents are accurate.
- A quality audit will be done by the lender, reviewing any changes to your credit or employment status.
As a reminder, final loan approval comes from the Underwriter only when all conditions have been cleared to achieve clear-to-close” status for funding.
Step 5 – Draw Loan Documents/ Escrow Signing (1-2 Days)
After final approval, the Underwriter gives the green light to have final docs prepared for signing at the title company.
Sometimes this is managed by a “Doc Drawer” who sends final documents to the title company to be signed. The buyer and the seller sign the paperwork to seal the deal in order for the funds to be disbursed from the escrow account a “community bank account” where the funds are held until funding.
The second-to-the-last step is recording at the county, which happens after funding.
Funding and recording can take up to 24-48 hours to complete.
Step 6 – Closing Day
Today is the day!
Once the ownership is transferred through the county, then escrow is officially closed.
For perspective, this entire process can take on average 30 days from the time your original offer is accepted.
Now is the time to celebrate and work with your real estate agent to get the keys to your new home!
If you have any questions, or know anyone looking to purchase a home