8 Steps in the Mortgage Loan Process

The mortgage loan process is the process by which borrowers get approved for a home loan and lenders mitigate their risks by catering to only qualified borrowers. It involves the processing of extensive documentation and requires several quality control checks to ensure that all information presented is accurate and complete. Mortgage processing involves several key steps.

Here are a series of 8 basic steps that accurately describe the entire mortgage loan approval process from pre-approval to closing:  

Pre-Approval

The lender will examine a borrower’s financial information to figure out whether and how much they are willing to lend them. They will have to meet certain criteria in order to get approved. Some factors that determine their ability to be pre-approved include their debt ratio, credit score, and all the types of income they may have. Based on these, they will qualify for a pre-approval.

Loan Application

In this stage, the borrowers will have to provide lenders with a significant amount of documentation so that their file can be passed on to underwriting. These include details such as their employment income and title, marital status, assets such as bank accounts and investments, as well as liabilities that include student loans and revolving credit. 

Loan Estimate (LE)

A Loan Estimate is generated after the above documentation has been reviewed. It is simply a declaration of the terms and estimated costs associated with the borrower’s loan. Some details that are disclosed include the interest rate, mortgage insurance, monthly payments, and closing costs of the loan. The LE does not mean your loan has been approved. 

Loan Processing

At this stage, the processor orders the appraisal, credit report, and title report for the property. All the details contained in the application are then verified. Any blemishes like collections, late payments, and judgments will require written explanations. The title reports and appraisals are then evaluated to check for any property issues that might require further investigation.

Underwriting

An underwriter will assess the risk that a borrower poses by checking whether the borrower has the means to pay back their loan by assessing their income and savings. They will also evaluate the type of property and the value of the collateral being financed to ensure that they will be able to recover the unpaid balance of the loan in case of default. 

Quality Control (QC)

Before a loan is dispatched to closing, it is important that a QC audit is carried out. This audit will uncover and identify all sources of risk associated with a borrower’s file. Multi-tiered document verification at this stage is essential to ensure that all the information provided was accurate and in keeping with all the mandated requirements.

Closing Disclosure (CD)

A Closing Disclosure is a document that details the loan terms, fees, monthly payments, and closing costs you will incur. It is generated at this stage to provide confirmation of the estimates made in the loan estimate. It contains the final numbers in terms of costs that you will be held responsible for once your mortgage loan has been approved.

Closing

Your file is then transferred to the funding and closing department. All closing costs and down payments will have to be paid at this stage. Also, the borrower will have to take out homeowner’s insurance to cover loss or damage from fires, vandalism, theft, etc. It is here that the lender will release the borrowed funds to purchase the property. 

Mortgage loan process is a multi-staged endeavor for lenders that is highly time-consuming and process heavy. From pre-approval and underwriting to quality control and closing, each stage involves complex balances and checks. To obtain the best mortgage for your unique needs, you may want to work with a mortgage process outsourcing company that can cater exclusively to your requirements.

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