The process of getting a mortgage consists of several stages and typically takes anywhere from 30 – 45 days (or more) depending on how prepared you are, what mortgage program you have selected and if it’s a purchase, the closing date may dictate how long the process will take. The steps below may not take place in the exact order I have listed and some steps may happen simultaneously.
Prequalification. The prequalifcation stage may consist of obtaining rate quotes from various lenders and providing lenders information (verbally or electronically) about your home buying or refinancing scenario. This is probably the most ideal time to “shop” for your lender (if you have not already made your selection).
You can start the prequalification or preapproval process as soon as you begin to think about buying a home. I often help home buyers who are 12 months away from being ready to buy and who want time to plan and work on savings and/or their credit.
Preapproval. During the preapproval stage, you will need to provide your lender with documentation that proves your income, assets and funds for closing. Your credit report will also be ran (if it was not ran during the prequal stage). Your pre-application is updated with information based on the documentation provided. Your mortgage originator will also help you fine tune your selection for your preferred mortgage program. It is likely that your information will then be ran through an automated underwriting system (aus) depending on your loan program.
If you are buying a home, and your loan is preapproved (based on the aus or human underwriters review), you should receive a preapproval letter from your lender. If your loan is not preapproved, your lender should provide you with guidance as to what needs to improved (typically credit, income or assets) in order to achieve a preapproved status.
Sometimes preapproval letters need to be updated as credit report and supporting documents “expire”. It’s very important that once you’re preapproved, you unplug your shredder.
You may need an updated preapproval letter that is customized for a home you’re making an offer on. It’s very important to check in with your mortgage originator before making an offer so they can provide an updated preapproval letter and an updated rate quote scenario. Your mortgage professional will need to know the amount of the property taxes and the amount you are planning on offering as well as when you plan on closing on the new home.
NOTE: Some home buyers might opt for a Letter of Loan Commitment over a preapproval letter – this is basically an amped up preapproval letter.
Making an Offer. Your Real Estate Broker will present the purchase and sales agreement based on the terms of the mortgage you are preapproved for (this is another reason why you should have your preapproval updated when making an offer on a home). Often times, the preapproval letter will be included with the purchase and sales agreement. If you have any vacations or travel time prior to closing – be sure to let your real estate agent and mortgage professional know prior to the offer.
It’s not unusual for Listing Agents to want to call your Mortgage Professional to review the preapproval letter. Some times, upon request of my clients, I will contact the Listing Agent to introduce myself. It can often help buyers “win” their home when there are multiple offers.
Mutual Acceptance. (if buying a home). Once you have a signed around purchase and sales agreement, a complete copy of the purchase and sales agreement needs to be provided to your lender.
Processing. Once you have provided your lender with a purchase and sales agreement or you have decided to proceed with a refinance, you’ll begin the processing stage of your transaction. The loan processor works closely with your mortgage originator to prepare your transaction for underwriting. During this stage, title insurance and escrow are ordered (based on the purchase and sales agreement, if you’re buying a home). The processor will review and update the application and will request any additional information or documentation from you.
NOTE: If you have any changes to your application during the process, such as changes to your employment, assets or credit, that you contact your Loan Officer immediately.
Initial Disclosures. After you have provided your lender the purchase and sales agreement, or have a complete application, you will receive your initial loan documents. At Mortgage Master, these documents are prepared and provided by our compliance department. The preliminary loan package will include your Intent to Proceed and Loan Estimate (LE) as well as other disclosures. It’s important to promptly review, complete, sign and return the preliminary loan application package.
Locking…or not. Depending on when your closing date is, you may or may not want to lock in your rate. Some borrowers may opt to “float” (not lock) in their mortgage interest rate. A mortgage interest rate may (and will) change until the rate is locked in. Your rate needs to be locked before an underwriter can issue final loan approval.
Once you lock in your rate, you may have additional documents, including a revised Loan Estimate, pertaining to the lock to sign and return to the mortgage company.
Home Owners Insurance. You will need to provide your lender with the contact information of who will be handling your home owners insurance. The lender will request a binder from your home owners insurance provider. This needs to be done as soon as possible as the home owners insurance premium is part of the mortgage payment (unless you are electing to pay the home owners insurance separately).
Appraisal. If you are buying a home, the appraisal is typically ordered after the home inspection (assuming there is one) has been done and the results are satisfactory. When the lender receives the appraisal, it is reviewed by underwriting and then provided to the borrower.
If the appraisal comes in less then the sales price or expected value of the home, your will most likely review possible options with your Real Estate Broker and Loan Officer. The lender will base the loan to value on the lower of the sales price or appraised value. In the event or loan amount or terms of the mortgage change, you may receive revised disclosures, including an updated Loan Estimate.
The appraisal may also have items that need to be addressed. A popular item in Washington state is missing carbon monoxide detectors and/or missing earth quake straps on the water heater. (Come on, sellers and listing brokers – make sure you get those CO detectors installed in the home BEFORE the appraisal is ordered).
If the appraiser calls for items to be repaired or re-inspected (for missing CO detectors or water heater straps, etc.) on the appraisal, a re-inspection (aka 442) may be required.
Underwriting Approval. Once processing has a complete loan application with supporting income and asset documents, they will submit the loan to underwriting. Underwriters will review the application, supporting documentation and lender guidelines. They will then either issue a “conditional approval or possibly deny or suspend the file. Assuming the loan is approved 🙂 their may be “conditions” to the approval that need to be resolved before they can issue a “clear to close”. Examples may include documenting the source of a large deposit, writing a letter explaining employment history, providing updated paystubs, or missing pages of a bank statement.
After the initial underwriting approval (conditional approval) is issued, the file is sent back to processing to work on getting the items requested by the underwriter.
There are two main types of underwriting conditions:
- prior to doc (ptd) = items that must be resolved before docs can be ordered.
- prior to funding (ptf) = items that must be resolved prior to funding (closing).
Review and re-submission of conditions. The processor and/or mortgage originator will work on obtaining the underwriting conditions. This often means that you, the borrower, will be hearing from the mortgage company with (hopefully a short) list of additional items that are needed. This is not unusual… and you’ll probably feel like you’ve been asked for the same thing over and over again. The mortgage process is redundant – there is no way to sugar coat it. The good news is that by this time, you are almost finished!
Once the processor has obtained everything from the underwriters conditional approval list, the file is sent back to underwriting for review. If the documents appease the underwriter, final approval is issued. Sometimes, the documents provided may trigger additional questions or requirements from an underwriter, in which case, they issue a revised approval with new conditions to be satisfied. This will continue until final approval is reached.
VERY IMPORTANT NOTE: If there have been any changes to the contract, such as seller credits, sales price, closing date, etc. it is extremely important that you let your mortgage professional know. Do not assume that the Real Estate Broker has informed them. Any changes to the contract, or if you are planning on being out of town prior to closing, needs to be relayed to your mortgage professional as it may very impact when you can close and when we can issue the Closing Disclosure.
Final approval. Oh happy times!!! This means that at the very least, all prior to doc conditions have been met. There may or may not be prior to funding conditions remaining. At this point, loan documents can be prepared.
Closing Disclosure. Once we have final loan approval, a Closing Disclosure will be prepared and provided to all borrowers on the transaction. The Closing Disclosure is a newer document that is replacing the HUD-1 Settlement Statement.Once the Closing Disclosure is received by the borrower, there is a three business day waiting period BEFORE the home buyer can sign their loan documents. It is CRITICAL that the borrowers sign and return the Closing Disclosure to the lender as soon as possible so that the lender has evidence as to when the borrower signed the Closing Disclosure and when the wait period can start. The three day waiting period CANNOT be waived and has the potential of delaying the closing if not executed and provided to the lender in time.
Docs. After the lender receives the signed Closing Disclosure from all borrowers, they can begin preparing loan documents. Once the loan documents are prepared, they are delivered to the escrow company.
Signing. Escrow typically likes to wait until they have received loan documents from the lender before scheduling an appointment to sign. As someone who worked in the title and escrow industry for many years, I don’t blame them! This is to avoid having to reschedule appointments and closers typically have pretty tight schedules. Plan on your signing to take at least an hour – possibly longer depending on how many questions you may have.
Signing typically takes place 1-2 days before closing.
Final document review. Once you have finished signing, the escrow company will send the documents to the lender for review and the documents to recorded (the deed of trust and deed, if it’s a purchase) to the recorder’s office in the county the property is located in.
Re-verification. Just prior to funding, the lender will check with employers to makes sure nothing has changed with the borrower’s job status and a soft pull is done on the credit report to confirm that no changes to the credit profile (no new credit or large purchases on existing credit accounts).
If there has been changes to employment or credit, the transaction may be delayed as the new changes may have to be approved by underwriting. It’s important to remember that your financial profile should reflect your final loan application.
Funding and recording. Once your employment and credit have been re-verified, the lender will contact the escrow company to “balance” funds. This means they are making sure that everything is correct with the Closing Disclosure down to the penny. Once they balance, the lender will wire funds to escrow (this takes longer than you would expect in this day and age) and provide escrow with instructions for recording.
Recording takes place at the county where your home is located. The vesting deed and deed of trust (mortgage) are recorded and become public record, essentially announcing to the world that you own a home and have a mortgage. Because recording creates a public record, you can expect to be very popular (even more than before the process) and to receive constant piles of junk mail.
Closing. Yes!!! The moment we have all been waiting for!! Once your transaction has funded and recorded, you are officially “closed”.
Now that wasn’t so bad… was it??? 🙂
PS: If you are considering buying or refinancing a home located anywhere in Washington state, I am happy to help you!
The process of closing on a home is often confusing to home buyers and sellers and differs from state to state. We’re in Washington, so I’ll talk you through the process here, but if you are in another state, the process may or may not be the same.
Preliminary closing items
Your title insurance and escrow companies will work on a variety of tasks in the weeks leading up to closing. The title insurer will research the title history of the property and verify any liens that need to be cleared to transfer ownership. They will also make sure that the property qualifies to be issued a title policy, and if you have a common name, they may ask for identify verification documentation to prove you are not the same “John Smith” who has a judgment against him. Your escrow company, which may or may not be the same as the title company, will track down payoff statements for each mortgage or lien against the property. They may need you to provide authorization to obtain such statements on your behalf. As a buyer, you need to stay on top of documentation requests from your lender and prepare your down payment funds.
Loan documents sent to escrow
“Your loan documents are in escrow” are the magic words that all buyers want to hear. Nothing can be done or signed until those arrive, and in 95% of cases, this is the step that the entire process is waiting for. In order to generate loan documents, your lender needs to approve your file in underwriting. This means that the underwriter has reviewed your income, debt, credit and the appraisal of the home and determined that it fits within their lending guidelines.
In a perfect world, these arrive 2-3 days prior to closing. It gets pretty dicey to close on the same day as documents arriving, though it can be done if documents arrive early in the morning. Once documents are in escrow, the escrow agent needs a few hours to prepare the file. Basically they review all of the lender closing instructions and then prepare a HUD-1 Settlement Statement that reflects the purchase price, closing costs and all fees that are outlined in the purchase & sale agreement, the listing agreement (if you are the seller) and the lender instructions.
Sellers can generally sign their closing documents without having to wait for the buyer’s loan documents to arrive. During the signing appointment, you will sign a number of documents. The important ones are the deed transferring ownership, an excise tax affidavit showing the tax you are paying on the sale and a HUD-1 Settlement Statement outlining the sale price, any charges or credits to you and the net sale proceeds that you will receive. You will also tell them how you want to receive your proceeds, whether via check or wire transfer. Most seller signings happen 1-3 days prior to closing.
Once escrow has received loan documents, they will schedule a signing appointment for the buyer. This is always a source of angst for buyers who want to plan their closing appointments ahead of time. The escrow companies can’t do a darn thing with you until they receive loan documents and the exact arrival of those documents is hard to predict. They won’t set appointments to sign without documents in hand, so make sure that your schedule is flexible in the days immediately prior to closing. Buyers typically sign their documents 1-2 days prior to closing.
During the signing, you will sign a small forest worth of documents, most of which are generated by your lender. In a nutshell, you sign documents that say how much you owe them, how you will pay them back and what happens if you don’t pay. It usually takes 50+ pages to get this across! In addition, you will sign a copy of the HUD-1 Settlement Statement showing what you are being charged, what you have already paid, and what remaining funds you need to provide to the escrow company. You will need to provide certified funds for the remainder of your down payment and closing costs, which means either a certified check or wire transfer. If you are providing funds on the day of closing, you will be required to send funds by wire. Note that most banks have a 12:00 or 1:00PM wire deadline, so you need to take care of such transfers in the morning.
Once you have signed your documents, the loan documents are sent back to your lender for review. Some lenders require documents with original signatures to be couriered to them. Other lenders require 24-48 hours to review. The most flexible lenders are the ones who will fund your loan on the same day by reviewing a scanned copy of your documents. These lenders are known as “table funders,” and you won’t know how great this is until you get in a last minute bind with a lender that has lengthy review procedures.
Once the lender is satisfied with your loan documents and the settlement statement figures, they will wire your loan proceeds to the escrow company. Typically this happens on the closing day, though sometimes it can happen a day or two beforehand. Once again, these funds are tied to the wire deadlines. If these funds are not wired by 2PM, they won’t arrive until the next day. (All wire transfers are tied to east coast time where they are processed by the Federal Reserve.)
Unless you have problems with delayed loan documents, in Washington the buyer and seller don’t really do anything on the closing day other that sit around and wait for the transaction to close so that they can exchange keys. However, there are a number of behind the scenes tasks that must happen before the sale is complete.
Real estate transactions must be recorded at the county recorder’s office for a sale to become official. The title company will send the deed, your deed of trust (mortgage) and the excise tax documents to the recorder’s office. The title company has a courier that shuttles these documents to the courthouse throughout the day. Your documents will likely be queued up in this process waiting for the escrow company to “release the file to record.”
There is a final lender review of the file on the closing date. They verify the final settlement statement, wire their funds and ensure that all conditions required have been cleared. Once the funding department is satisfied with the file, they tell the escrow agent to “release the file to record.”
Once the file is released, the documents are taken to the counter at the recorder’s office and submitted for recording. The moment the document is scanned, a recording number is generated and provided back to the title company. The recording number of the deed is evidence that the transaction is officially closed. The recording numbers then get passed along to your real estate agent, who gets to make the exciting call that your home has finally closed.
Once your deed and mortgage are recorded, you own the home and escrow is able to disburse funds to all parties in the transaction. The previous lender is paid off, the real estate commissions are paid and the seller is sent their proceeds from the sale. You also get to receive the keys from the seller, depending on the possession time you negotiated in your contract. The default contract language grants you possession at 9PM on the closing date, but if the seller is moved out, the exchange of keys often happens earlier.
If you are a seller, you will generally receive your sale proceeds on the day after closing, so don’t go writing any big checks just yet. Technically the funds can be disbursed to you at any point after recording numbers are received, but from a practical standpoint, you have likely missed the wire transfer deadline for that day. Most sales officially close late in the afternoon.
Be flexible to avoid closing delays
The last few days of a real estate closing are when most things go wrong. If you are involved with a real estate transaction, make sure that you are available to sign documents at a moment’s notice and try to be reachable during this critical phase of the transaction. If you are prepared to be flexible, you can head off any last minute delays.