The Loan Process
The mortgage (loan) amount plus your available cash down payment will dictate what sales price you can afford. Example: If you qualify for a loan amount of $350,000 and you have available cash of $35,000, then your sales price should not exceed $385,000.
Step 1: How Much Can You Borrow – Get Pre-Qualified
There are standard lender guidelines that all mortgage lenders must follow. The people “with the money” create the rules that determine if you qualify to borrow that money. In the situation of a mortgage loan, Fannie Mae (FNMA) and Freddie Mac (FHLMC) set the rules.
To be “pre-qualified” is NOT the same thing as being “pre-approved.” The pre-qualification process determines your ability to qualify based on:
- Your stated income
- The monthly payments of credit accounts you disclose to the lender
- How much money you have available for the down payment and closing costs.
Notice that this is a discussion and you are only working with the Loan Officer at this point.
To be “pre-approved”, you will be required to provide:
- Documentation to prove your income (W2s & 30 days of pay stubs)
- A credit report will be pulled — If there is derogatory information within the report, you will be asked to explain the reason for the negative information
- Bank statements (2 months consecutive) to prove you have the required cash money on deposit
These documents are analyzed by the Loan Officer and submitted to Underwriting for the loan approval.
Now you have been pre-approved based on your income, credit and cash assets.
The only thing missing is your property of choice!
NOTE: The biggest difference between “pre-qualified” and “pre-approved” is the underwriter and written documentation.
STEP 2: What house fits in your price range – Let’s go shopping
Now that you have your letter of pre-qualification from your loan officer, it’s time to choose your realtor.
Your letter will state how much mortgage you qualify for and how much the sales price should be that you shop for. These are guidelines only. But remember, the cash difference between the sales price and the mortgage loan will come out of your pocket.
If you have questions related to the loan and your cash investment while house-shopping, call your lender to obtain clarification. Don’t assume.
Make an offer to the seller, once you have chosen the house that you are comfortable with. Your realtor will walk you through this step.
STEP 3: Time to finalize the Loan Application and Lock in your Interest Rate
If you only did the ‘pre-qualification’ from Step 1…
You must now turn that into a loan application and provide your lender with all the documentation required by the underwriter to obtain the loan approval.
If you and your lender actually obtained a “pre-approval” through the underwriter…
Then the only thing your lender needs is a copy of the Purchase Contract you created for the house of your choice. Your lender will also ask you to determine what insurance company you want to use for your Homeowners Insurance. This is required to be in the file before the final loan approval from underwriting is generated.
Once the Lender has received the fully executed purchase contract…
They will order an Appraisal and all the Title Documents required for the file. These take approximately 2 weeks to get back from the selected vendors. When your lender has received the appraisal, title documents, and homeowners insurance, the file will be sent back to the underwriter to obtain “full loan approval”. If there are no questions (conditions) from the underwriter, the UW will provide a “Clear-to-Close” (CTC) and the closing date will be set up at the title company, where you will sign all the documents and receive the keys to the house.
Now it’s time to “lock in” your interest rate.
Locks are normally good for 30 days. This discussion should be held with your lender when the signed purchase contract is delivered to the lender. Locks are assigned to the property not the borrower, so a loan cannot be locked until the property has been selected.
IMPORTANT THINGS TO KNOW
If any of these things occur, it’s mandatory that you inform your lender immediately.
1. Do not move money from one account to another after you have provided bank statements to the lender. Your cash assets will be verified prior to closing and if the verification is different from the bank statements you provided to the lender / underwriter, then the file has to be sent back to underwriting to be approved again.
- If the transfer of funds is a necessary step, then communicate with your lender prior to the transfer so your lender can tell you what documentation will be needed to complete the file.
2. Do not make any major purchases until your loan has closed. Purchases will add to your debts, which will increase your debt-to-income ratio. This could cause your loan to be denied.
3. Do not change jobs without consulting with your lender first. Your employment will be reverified the day before closing. If an employment change is in the works, be sure your lender is aware.
4. You should not go out of town around your loan’s closing date. If this situation occurs, arrangements can be made to accommodate. Inform your lender.
Ready to take the first step?
Get pre-qualified or approved!
You will be redirected to a secure third-party application portal.
