What's the Process
Make loan application
The first step in the loan process is the make a loan application. A loan application consists of your personal information, employment, income, assets, answers to disclosure questions, and specifics surrounding what you are looking to do with the home loan. It is common after a lender receives your loan application that they will quickly pull your credit report which will be needed to make a solid decision. Most lenders make a determination about if you could be approved for a loan based upon only looking at your loan application and your credit report. This is called pre-qualification. Pre-qualification is the lightest and most vulnerable opinion that a lender can provide a home loan applicant. “Power” is not a word you typically associate with obtaining financing for a home purchase, but it should be. Your power source, pre-approval.
Side Note: In the world of home loans and the compliance that surrounds them you may hear the term valid loan application. When an applicant submits six pieces of specific information to a lender that lender is said to have a valid loan application under the TRID or “Know before you Owe” rule. Once these 6 pieces of information are submitted a creditor MUST supply a Loan Estimate for approved loans within 3 business days. These six pieces of information are: Name, Income, Social Security Number, Property Address, Estimated Value of Property, Mortgage Loan Amount sought. During the early stages of the process, you will have five out of the six pieces of information. The piece you will be missing is property address. Once you have selected a property address then you will have a valid loan application.
What in the world is “pre-approval”?
The pre-approval process allows you - and the prospective seller - to know you are qualified to finance a certain amount of money using a specific loan program, even though you haven’t yet found the actual home you’d like to purchase. Pre-approval is where a lender acquires a portion of the applicant’s documentation to verify the information provided on a loan application. This is always better than pre-qualification but still does not bring total confidence to a seller. To be the most attractive to a seller and to go head-to-head with cash offers you will need your file to be completely pre-underwritten. How do you do that? You work with a lender that will fully pre-underwrite your file by acquiring all documentation and underwriting the file in advance to reveal and overcome any potential conditions that could be an obstacle going forward. This eliminates any chance of your loan not getting approved after your offer has been accepted by the seller.
Why is pre-approval so Powerful?
In a nutshell, pre-approval lets home sellers know that you are a serious prospect - as opposed to tire kickers. Your pre-approval letter can be used as a bargaining chip. Especially if your file has been pre-underwritten.
For example, let’s assume you find your dream home next week. The seller has two buyers in front of them making an offer on the house. One (you) is pre-approved with a mortgage and ready to commit. The other potential buyer is only pre-qualified . Which buyer is the seller more likely to give priority? You are right, the pre-approved buyer.
Tip: Another nice benefit of being pre-approved is that we’ll be much less likely to hit unforeseen snags later down the road.
How do I get Pre-approved?
The pre-approval process is quite simple. We will fully analyze your financial situation, determine how much home you can finance, and identify which loan programs you will be eligible to use.
Scissortail Financial will pre-underwrite your file just as if you’ve found the home you’d like to purchase. However, for now, we’ll hold off on official processing steps such as the appraisal, survey, and title work.
With a pre-approval letter in hand, you’ll be ready to embark on the journey of finding and negotiating the purchase of the home. Best of all, you have the power in your hands.
Bonus: Scissortail Financial does not charge to fully pre underwrite your file. We choose to not charge upfront costs such as application fees and credit report fees. This allows you to make a confident offer when trying to buy a home with no upfront out-of-pocket expenses.
Your offer is Accepted. It’s go time!
Go time best describes the next step. At the time a contract is negotiated on a home, the pre-qualification turns into a valid application since you now have a subject property and the lending institution is bound by certain timelines to send certain disclosures to you. At this time the contract information is entered and the documentation provided on income, assets, credit etc. is reviewed again to ensure its accuracy. The initial loan document packet will be delivered to the consumer via an electronic delivery service. These documents can be signed electronically, or the consumer can schedule an appointment to come to the office in person to review and sign the disclosures. This is the first time-sensitive step. Until the lending institution receives the signed loan disclosure packet , we are not allowed to do any additional work on your loan file. Once the documents are signed, we will call to collect the appraisal charge so we can order the appraisal. Additionally, we will also order the title set-up, flood certificate, tax return verification and fraud guard (realtors, appraisers, buyers, sellers, and loan originator (me) names are entered into this system to see if there have been any fraud claims filed). This process usually takes between 24-48 hours.
The processor is the person who reviews the file before sending to underwriting. The processor will double check the information provided and what was entered into the system, to make sure they match and are accurate. If there is any missing information, the processor will contact you to remind you what additional items are still needed. The relevance of any missing items, will determine whether or not the loan can be sent to underwriting. In most cases there is enough supporting documentation to ensure that the file can be sent to underwriting while waiting on the other items. When the underwriter reviews the file there will likely be additional information requested. If we receive a conditional approval, the processor will contact you for any additional information requested by the underwriter. It is extremely important to get those items as soon as possible. There will likely be other documentation required before sending the file back to underwriting. Some of these items requested will be outside of the consumers control; it is an additional step for the processor to get those items before sending the file back to underwriting. Examples of these items could be a request of a correction or an additional sales comparison on the appraisal. Or it could be asking for an update on the credit report. Sometimes the request is to get full, written employment verifications. These are just a few examples but there could be more. Please understand that in these cases we are relying on third-parties to perform a task in which we have little control on the timing of receipt.
The underwriter is the person who finally approves the loan. It is the underwriter’s job it to confirm the accuracy of the information provided and to ensure that it “fits” within the guidelines of the loan for which you have applied. The underwriter is held personally responsible for approving loans and when a loan does not perform (or forecloses) the underwriter is charged with determining the specific reason.
There are two parts of approval. The borrower(s) have to be approved through credit, income, debt etc, and the home itself has to be approved (through value which is the appraisal, condition, and title).
Conditional approval is when the underwriter has reviewed the file and determines the loan meets guidelines and requirements. As mentioned before, they will likely request additional documentation to support the information provided or to meet the loan guidelines. If the underwriter needs any additional information, the processor will send and email and/or call to request the information. If it is third-party documentation, the processor will work directly with that third-party to get the information. Examples of third-party documentation would be the appraiser, credit bureau, IRS, title company, or employer to name a few. The file will NOT go back to underwriting until all the requested information is received. There is a possibility that the additional information could result in getting more information (such as a request for an additional bank statement and that statement has large deposits that have to be sourced). There are also times, albeit rare, when this new information can change a conditional approval to a denial (the borrower’s income changed up or down causing them to no longer qualify for the loan, a collection appeared on the credit report that wasn’t there at application, the appraiser couldn’t find any additional comparable sales to substantiate the value are just some examples). Ideally, the file should go back to underwriting no more than twice (once for the initial review and second time to review and approve the conditions) but unfortunately is can go back more times. This makes everyone very cranky. J
Final loan approval
This is when the underwriter has received everything that is provided and has fully approved the loan and has issued a “clear to close.”
Back to processing – again. Before the loan can go to closing, the processor has to verify employment within 10 days of closing. So, depending on the timing of loan approval with the “clear to close” this step could be done after final underwriting approval. Also remember that credit is being continually monitored until closing. If there are any changes to either employment or credit it could cause another review in underwriting. There are a few other housekeeping items the processor performs before actually sending the file to closing.
This is the step where the Scissortail Financial closing department works together with the title company to prepare the final loan documents that are signed at closing. The Closing Disclosure (CD) will also be completed with all the charges and credits to determine the amount of money needed for the closing. Up to this point the funds required for closing are estimated. While the estimate should be close is not exact until the title company “closer” and the Scissortail Financial “closer” actually reviews and completes the closing documentation. The CD is required to be delivered to you 3 days before closing. You cannot close until you have received that document. It will be delivered through the same electronic delivery service that was used to deliver you other documents throughout the process. Once you open the CD it triggers an email back to us to “start” your three day waiting period.
The actual closing is when all the final loan documents are signed, funds are delivered, and keys to your new home are released; this function occurs at the closing/title company. The title/closing company generally requires the closing funds to be wired. If so, they will send the wire instructions prior to your scheduled closing time.
Most banks require a face-to-face transaction for wires and cashier’s checks so if funds are not in a local bank determine what steps need to be made to have access to those funds in time for closing. If the title company allows a cashier’s check make that check out to the Title Company.
In most cases everything is completely ready to close when the file is sent to the closing department. But sometimes there are items that may be “closing conditions” which means we don’t have them until right before closing. An example of these items may be a copy of a settlement statement on the sale of a current home with a certain dollar amount “netted” to use for the down payment of the new home. Many times a sale of one home and the purchase of another home are back-to-back. So we don’t have that closing statement of the sale until right before you go to the new home closing. Again, if that amount netted is less than what the underwriter approved, it could cause another trip back to underwriting to further document that we verified sufficient funds to close. Another closing condition could be a final inspection or the loan requires certain inspections. In the case of new construction verification is required to determine the house is 100% complete before we can close. Generally, when the house is done everyone wants to close asap. But the appraiser has to go back out to verify the house is 100% complete then send a written report of confirmation.
If there were repairs made to the property there has to be documentation from the appraiser or inspector that those repairs were made. In some cases the loan requires specific inspections. Until we get those inspections and verify they are free of requirements, we cannot close. For instance a clear termite inspection is required for a VA loan and a Hud 184 –Native American loan. A rural property may require a well and/or septic inspection. A mobile home will require a structural engineer’s inspection to determine if it was installed per the HUD guidelines. Note – there are very few or no inspections required for most loans.
This process can seem complicated. The creators of home loan guidelines don’t intend to frustrate or aggravate you while getting your loan underwritten from start to finish. Ultimately the process is designed to protect the borrower and the lender. Our goal is a smooth process and a happy customer. We are here to guide you every step of the way and apply our expertise to get you to that closing table as soon as possible where the keys to that next home are waiting for you.