Prequalification
Before house hunting, buyers needing a mortgage should speak with a mortgage broker or loan officer to review their income, credit, debt-to-income ratio, and available funds for the down payment and closing costs. This information is submitted to automated systems (Fannie Mae/Freddie Mac) for conditional pre-approval. Buyers then receive estimates for home prices, loan amounts, monthly payments, and total funds needed. Most real estate agents require prequalification or preapproval letters before showing homes or submitting offers. A prequalification is based on verbal info and credit check, while a preapproval uses verified documents like pay stubs and bank statements. If a broker doesn’t provide full cost and payment estimates, it may be wise to find someone else.
Application
Once a home contract is signed, buyers typically have five days to formally apply for a mortgage. Applications can be done in person or remotely. After applying, the loan officer resubmits borrower and property info to the underwriting system, locks or floats the interest rate, and provides loan estimates and disclosures, which the borrower can sign electronically or in person.
Next, the borrower provides supporting documents and payment info to order the appraisal. A loan processor then handles ordering the appraisal, title documents, and verifying documents are returned. The appraisal usually follows a completed and approved home inspection. The processor submits the file for conditional approval and requests any remaining documents from the borrower.
Once the appraisal is completed, it’s sent to the borrower for review and to the underwriter for approval. Title documents are also reviewed by the lender. Meanwhile, the borrower should get quotes for homeowners (and possibly flood) insurance, choosing an agent to issue coverage and send proof to the lender. A property survey is also ordered and submitted for approval.
When all conditions are met, the file receives a “Clear to Close” status, and closing documents are prepared and sent to the settlement agent.