Different Stages of a Mortgage Application

by Karen Rogers

    Buying a home can be an exhilarating and nerve-racking experience. The journey from submitting the initial loan application to signing the closing documents usually takes from one to three months. During that time, your application is making its way through different stages. Your mortgage loan officer will keep you informed of your application’s progress throughout the approval process. While knowing what’s happening during each stage won’t speed up the process, it can at least help you feel better by understanding what’s going on.

    Submitting the initial application is the first stage. It’s the loan officer’s job to take that application and get it ready for the underwriter. Your loan officer reviews the application and makes sure you’ve included your employment history, and your income, expense and debt information. He’ll also initiate a title search and arrange a home appraisal. You’ll receive a phone call from your loan officer if he needs more information or documentation. You’ll get a copy of the final application and the Good Faith Estimate before it’s forwarded to the underwriter.

    During the second stage, the underwriter reviews your application and evaluates whether or not you can afford the monthly mortgage payment. Your credit report is analyzed to see how likely you are to default on the loan. The underwriter will review the home appraisal to be sure the value is consistent with the requested loan amount, and will also confirm the source of your closing funds. Once the review is complete, the underwriter can approve the loan, approve the loan with conditions, suspend the loan for additional information, or reject the loan.

    With your loan approved, the application moves into the third stage. The lender issues a commitment letter, which means it agrees to make the loan. At this point you’ll select a date and time to close the loan. In the meantime, any repairs that were part of the initial real estate sales contract must be completed. The property may be inspected for termites and a survey may be performed. You must obtain and provide proof of homeowner's insurance. A title policy and the loan documents are drawn up in anticipation of the closing.

    Your loan closing is held at the title company’s office or an attorney’s office. You’ll have a chance to review the loan documents and ask questions before you sign. You’ll have a stack of documents to sign, but four of them are more important than the others. The HUD-1 Settlement Statement breaks down your final loan costs and fees; the Truth-In-Lending Statement discloses your loan's annual percentage rate; the Promissory Note is your promise to repay the loan; and the Mortgage pledges the home as security for the lender. You’ll receive a copy of all the loan documents before the closing is over.

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    About the Author

    Based in St. Petersburg, Fla., Karen Rogers covers the financial markets for several online publications. She received a bachelor's degree in business administration from the University of South Florida.

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