Compared to the years before 2008, being approved for a mortgage loan is much more complex and difficult. Lenders will ask more questions and require more documents since the regulations have changed.
This article tries to simply explain the steps on getting a loan for a residential real estate property purchase transaction.
- Get pre – approval or pre – qualification letter. This should be done before house hunting.
Contact a loan originator and send the required loan application and supporting documents to get pre – approval or pre – qualification letter.
An experienced professional can also help you understand the state of your finances and tell you how much you will qualify for. This will help you get a general idea on what kind of house you are qualified to buy and how much the monthly payment will be.
Most loan originators offer free pre-qualification and pre-approval letter. Some ask to review the borrower’s income and asset documents while others only need to hear such information verbally. The more time a loan originator/lender spends on reviewing your files and the more documents they are able to review in advance, the more smoothly your loan process will be after you enter into a purchase contract.
At this stage, a borrower needs to know what loan product will be used, what their credit score is (even an estimate), an estimate of which rates offered are best suited to them, and what those rates’ APRs are.
What AAXY Mortgage does at this stage: Answering any questions a borrower may have. We will also review borrower’s financial situation and recommend the best loan product accordingly. We can also help borrowers improve/repair their credit if needed (AAXY Mortgage does not offer credit repair services, only consulting services on how to improve credit and/or fix errors). Alongside those actions, we will also work with different professionals to answer any real estate related questions that emerge, and recommend DOs and DON’Ts to borrowers.
- Actions to be taken after having an executed contract
Borrowers should contact the loan originator to receive an official loan package with Loan Estimate and other disclosures.
Borrowers will then sign all required documents and provide updated income, assets and liability documents.
The loan originator, oftentimes working with a loan processor and assistants, will then send the loan to underwriting and order the appraisal and title documents.
Then the loan originator will order verification documents (employment, tax return, borrower’s identity, property tax, etc).
Afterwards, the underwriter will review the loan package and all supporting documents, making a decision to approve or suspend the loan with conditions. Most loans will receive approval with conditions at this stage.
Next, the loan originator, with the help of a loan processor and assistants, works with the borrower and title company in order to get documents ready to clear underwriter’s conditions.
Finally, when all loan conditions get satisfied, the loan receives a CTC (clear to close) status.
What we do at this stage: It’s of utmost importance to understand the underwriting guidelines and get a loan approved and closed on time. If files are well prepared, the loan will have no, or very few, conditions. We thoroughly review each loan in detail to prepare documents to have loans with very few conditions. Our average underwriter touch is less than 2 in order to quickly get loans CTC.
- After loan gets CTC
The loan goes to the lender’s closing department, which then prepares the closing documents, which are to be sent to an attorney firm for reviewing (All Texas loans have attorney review the loan documents).
At the same time, the lender will do a final quality control and verification of the borrower’s income and credit. If the borrower’s work condition changes (i.e. lost job), or if the borrower’s liability (debt) increases, the loan may go back to underwriting process.
What we do at this stage: As a direct lender, we can prepare the loan documents before loan gets CTC in order to save time. In real estate transaction, time is very sensitive.
- Closing and Funding
At this point, the closing documents are sent to the title company who then handles the closing procedures. The title company will have the buyers and sellers sign all closing documents, collect the down payment and settlement charges, and then send a copy of all signed documents to the lender’s closing department for funding authorization.
If there are no mistakes in the files, or after the lender and title company work together to fix the mistakes, the lender will send the fund to the title company and the loan will officially be closed/funded.
Is there a lot work to do for a loan? Yes, a lot! Based on National Mortgage Bank Association’s survey, the cost to originate a loan is about $8887, which represents a lot work.
