Asset verifications. Credit reports. Insurance applications. Is your head spinning yet? The loan process itself can seem like an arcane, mystifying ritual, but once you understand some of the terms, it’s not so intimidating. A good lender will walk you through it, step by step.
Here are the basic steps involved in purchasing a home. The timeframe will vary depending on your location, the loan, you and your lender.
You've decided on a loan program and now you're ready to complete a loan application with the help of your lender.
To speed up the application process, your lender may give you a list of documents to bring. If you already met with a lender to prequalify, you may have provided some of this information – but you should still bring the documents again when you go back to apply for your mortgage.
Once you complete the loan application, the lender will verify all of the information you provide. Based on the requirements of your loan program, the lender may ask you for additional information.
Shortly after you apply for your loan, you’ll receive these documents from your lender:
Loan Estimate (LE)
The Loan Estimate is the lender's best estimate of your closing costs. It shows an estimate of the amount of any fees your lender may charge to process or close your loan, such as mortgage insurance, title insurance and recording fees.
The Loan Estimate also provides a summary of how your loan will be repaid and itemizes the costs associated with applying for a loan, including:
- The finance charge
- Annual percentage rate (APR)
- Number of payments you’ll make
- Amount of each payment (for fixed-rate loans)
- Late payment charges that may apply
- Total amount you’ll pay in principal and finance charges over the life of the loan
The information in the Loan Estimate Comparison section will help you to compare the cost of different loan offers. To compare the costs, you want to be sure you are comparing the same kind of loan.
The Commitment Letter is a promise from the lender to make you a loan. It includes all of the specifics of the loan as well as any conditions that must be met prior to or at the closing, and information on the loan amount, term, origination fee and interest rate.
Ordering documents for the loan file
Your lender orders the following documents and then awaits their return:
The property appraisal is ordered to estimate the property's market value. The maximum loan amount the lender will provide will be based on the purchase price or appraised value, whichever is lower.
If you do not have traditional forms of credit, you will need to provide other evidence of your ability and willingness to repay debts, such as money order receipts or cancelled checks from the payment of rent and utility bills.
Your lender creates a loan file with all required information and passes that file on to an underwriter.
The underwriter makes sure all loan requirements are met. Sometimes an underwriter needs additional information to make a decision. Two typical scenarios you might encounter are:
- Information is needed before the loan is approved. It’s critical that you provide the additional information as quickly as possible in this situation.
- The underwriter approves the loan "with conditions." That means you’ll need to provide additional information at closing before the loan can become final.
Once the loan is approved:
- Title insurance is ordered (usually your lender or attorney will order it on your behalf)
- Approval contingencies are met
- The closing is scheduled
Once the closing is scheduled, you’ll order homeowners insurance, which covers for damages or losses caused by things like theft, fire, vandalism or wind. Because your property is the security for your mortgage loan, your lender wants to be sure the value of the home is protected in case it is damaged or destroyed. Contact your insurance agent to secure an insurance binder.
At the closing, your lender will release the funds you borrowed to purchase the property and you’ll present a certified check to cover the balance of the down payment and the closing costs. You’ll sign a million documents. The loan is officially closed – and you move into your new home!