Here’s How the Mortgage Loan Process Works
Buying a home can be an exciting and rewarding journey , but it can also be overwhelming, especially if you’re not familiar with the lingo and terminology used in the real estate industry. One such term is the “mortgage origination” process, which describes the series of steps that occur between your initial mortgage application and the final closing of your loan. Let’s look at each step of the process and what you can expect along the way.
What is a mortgage loan?
Mortgage origination is the process by which a lender evaluates, approves and funds a mortgage. The process involves several steps and involves various parties, including loan officers, underwriters, appraisers and other professionals, who work together to evaluate the borrower’s creditworthiness and the value of the property. Now that we’ve gotten the fancy definition out of the way, here’s what the process actually looks like for potential home buyers.
The main stages of the mortgage loan process
Let’s break down the typical steps you’ll need to take during the mortgage loan process.
Pre-qualification and application submission
Pre-qualification is usually the first step in the mortgage process. It gives you a general idea of how much you can borrow based on the basic financial information you provide to the lender. (Pre-approval, on the other hand, is a more rigorous process in which the lender makes a conditional commitment to lend you a certain amount of credit.)
This process, along with filing an application, usually includes:
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Initial consultation with a credit specialist
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Preliminary analysis of your financial situation
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Discussion of loan options and requirements
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Filing the Official Application for a Mortgage (Form 1003)
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Payment of registration fee
Collection and verification of documents
The lender will request and review various documents, including:
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Payment receipts for the last 30 days
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Forms W-2 and tax returns for the last two years
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Bank statements for the last two to three months
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Investment account statements
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Proof of other assets or sources of income
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Documenting current debts
Real estate valuation and inspection
You will receive a professional appraisal to determine the value of the property. A home inspection isn’t mandatory, but it’s recommended, especially if you want a handy DIY to-do list . The key difference between an appraisal and an inspection is that an appraisal focuses on the value of the home, while an inspection focuses on its condition.
Underwriting
Underwriting is the process of assessing financial risk for a fee. At this stage the underwriters:
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Review all submitted documentation
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Verify employment and income
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Analyze credit history and debt ratios
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Evaluate real estate
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Assess the overall risk of the loan
Credit decision
Finally. The underwriter will make one of three decisions: approval, conditional approval (requiring additional documentation), or denial.
Closing process
Once approved, you need to take a few final steps:
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Review and signing of final loan documents
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Payment of closing costs
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Transfer of funds
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Registering a new mortgage with local authorities
Mortgage loan terms and costs
Everyone’s timeline is different, but according to Quicken Loans , the typical timeline is around 50 days:
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Pre-qualification: one to three days
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Underwriting application: one to two weeks
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Underwriting decision: three to seven days
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Closing: one to two weeks
On the finance side, know that there is a loan origination fee that typically ranges from 0.5% to 1% of the total loan amount. To learn more about costs, check out the breakdown by numbers in my interviews with first-time homebuyers across the country.
How to speed up the mortgage loan process
Of course, many factors can delay this process. Incomplete documentation, market conditions, problems with loans – many things can arise. Here are some tips to make this process as smooth as possible:
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Prepare documentation in advance and keep copies of everything.
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Respond quickly to lender inquiries and try to be prepared to respond quickly to questions and signatures.
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Avoid making major financial changes during the process or opening new lines of credit when applying for a loan.
Bottom line
Understanding the mortgage loan process helps borrowers prepare for what can be challenging, but doable! paths to purchasing your own home. Success depends on careful preparation, prompt communication, and working with the right people who can guide you through every step of the process.