The Mortgage Loan Process: What to Expect at Every Step

Buying a home is exciting and rewarding – but it can also be anxiety-inducing. Don't let the mortgage loan process scare you away from purchasing an asset that can earn value over time. Instead, let’s review the process together so you know what to expect at every step.

Step 1: Get pre-approved for a home loan

A mortgage pre-approval letter shows sellers and their real estate agents you’re serious about buying and gives them peace of mind because they know you’re pre-approved to get a loan. As a buyer, you'll also know exactly how much you can afford so you can tailor your home search to your ideal price range.

What documents do I need for a mortgage pre-approval?

To get pre-approved, you’ll need to fill out a mortgage application. The lender will ask you for information and documents to prove your:

• Income - W2s, or two years of tax returns if you're self-employed.
• Employment history - Contact information for your current employer if you've been there two years or longer. If you've changed jobs in the past two years, you’ll also need contact information for previous employers. Expect to provide dates of employment, your monthly income, and your job title.
• Credit score - Your lender will pull your credit report from one or more of the leading credit reporting bureaus - Transunion, Equifax, or Experian. They'll look to see if you pay your bills on time, how long you've had credit accounts and how many, and what type of credit lines you have open.
• Assets and liabilities - Assets are anything worth monetary value. For this, you'll need to provide a list of all your checking and savings accounts and the current balance for each. You'll also need to show the balance of any stocks, life insurance, bonds, retirement accounts, and mutual funds. Finally, you’ll need to gather bank and investment account statements to prove you have available funds for the closing costs and your down payment.

Liabilities include any revolving credit accounts (like department store credit cards or gas station credit cards), child support, car loans, alimony, and other outstanding debts.

How long does a mortgage pre-approval last?

A typical mortgage pre-approval is valid for 6 to 9 months. After that time, you may need to reapply if you’re still hunting for a house.

Step 2: Apply for a mortgage

Once you’ve found a home and the seller has accepted your offer, the mortgage loan process truly begins. It's time to apply for your home loan. Following your pre-approval, you'll work with your lender to determine the best loan type for you and your financial situation.

Documents needed for a mortgage application

When you apply for the loan, you’ll need the most current versions of all of the documents from the pre-approval, plus:

• Property information - Includes the property address, legal description, year built, and the type of loan you need. You'll also need to include the intended use of residency. Will it be your primary home, a second home, or an investment property? To make it simple, just share your offer letter with your lender. It’ll have most of your property information.
• Transaction information - An overview of the key transaction details, including loan amount, purchase price, estimated closing costs, the value of improvements/repairs, mortgage insurance, and buyer-paid discounts.
• Borrower information - This includes the full name of every person on the loan, dates of birth, Social Security numbers, marital status, number of dependents, and address history.
• Open declarations - This will include liens, judgments, past bankruptcies, pending lawsuits, foreclosures, or delinquent debts. You'll also be asked if you're a U.S. citizen or permanent resident.

Step 3: Review your loan estimate

By law, your lender is required to provide you with a loan estimate which outlines your estimated interest rate, monthly payment, and other associated costs of your mortgage within three business days of receiving your completed mortgage application. Be sure to review it carefully to ensure it's entirely accurate and contains no errors before your application moves forward.

Step 4: Your application is sent to a mortgage loan processor

After you've reviewed your mortgage loan estimate, your lender will send your application to their mortgage loan processor to prepare all of your documents before sending them to the underwriter. Your loan processor will likely get in touch with you to gather additional information.The faster you submit your information, the faster your file will move to the next step.

There’s a few big milestones that happen during this step including your appraisal, inspection, and title search. Here’s what you can expect:

• Appraisal - Your lender will order an appraisal to determine how much the home you’re about to purchase is worth. Appraisers review similar homes that have sold in the neighborhood as well as the home itself to determine the fair market value. This is an important step because it ensures you and your lender aren’t paying more than the home is actually worth. If the appraisal comes in below your accepted offer price, your lender may ask you to increase your down payment amount.
• Inspection - Many buyers have inspection contingencies in their offer contracts which means you have a certain amount of time to review the overall condition of the home with a licensed inspector before moving forward with your purchase. This step can spare you headaches and financial strain down the line if you catch costly repairs. Depending on the issues discovered, you may be able to request repairs, negotiate seller concessions, or even cancel your contract.
• Title search - During this time, a title search is ordered to ensure the home can be transferred to you free and clear after the sale goes through. If any issues come up during the search like unpaid property taxes or liens, the seller will likely be responsible for resolving them.

Step 5: Your application is sent to a mortgage underwriter

The underwriter's job is to verify your mortgage application one more time with the documentation provided. The underwriter is also responsible for ensuring you meet the borrower guidelines for your application's specific loan program.

Once the underwriter has completed all necessary cross-checks and verifications, you’ll receive a conditional approval. The conditional approval means that your home closing can move forward as long as the listed conditions are met. Once everything is checked off the list, you’ll be clear-to-close and fully approved to purchase the home!

Step 6: Review your closing disclosure

Three days before closing, your lender must provide you with a "closing disclosure." Carefully review this disclosure to compare your final terms and costs to the terms offered in your earlier loan estimate. The closing disclosure will state your exact monthly mortgage payment and your closing costs. If you have any questions or concerns, ask your lender before heading to the closing table.

Step 7: Do a final walkthrough

Before closing, you and your agent should do a final walkthrough of the house. This is your chance to make sure nothing has changed since the seller first accepted your offer. Look for any fixtures or appliances that should have remained in the home based on your contract, such as the refrigerator or washer and dryer. Also, double-check that all negotiated repairs have been completed to your satisfaction. Your agent can serve as your second set of eyes and communicate any outstanding questions or issues to the seller's agent.

Step 8: Close on your home purchase

Congratulations! It’s time to seal the deal - you’re finally closing on your home.

Documents needed to close on a house

Before your closing date, you should receive a list from your loan officer or agent with everything you’ll need to bring on closing day. Here are a few items you’ll commonly find on that list:

• Government-issued photo ID
• Copy of your homeowners insurance policy
• Home inspection reports
• Copy of your contract with the seller
• Cashier's check for down payment and closing costs (unless you're paying by wire transfer)
• Checkbook (to cover any miscellaneous costs)

Step 9: After closing on your mortgage

Update your driver's license – Check with your DMV to determine the deadline to change your address on your driver's license. Some states require you to record the change within ten days, others allow up to 30.

Secure your closing documents – Put any physical documents in a fireproof safe or safety deposit box. If your files are digital, back them up on an external hard drive that you keep in a safe.

Your loan may be sold to another service provider - Many lenders don’t "service" their loans which means they won’t be the ones collecting your monthly mortgage payment. Instead, they turn your loan over to a third-party provider. Don’t worry if this happens – it’s a common practice in the banking industry and the provider won’t change any of the terms of your mortgage loan.

Mortgage Loan Process Frequently Asked Questions

How do I best prepare for the mortgage loan process?

Track down all of your documentation for the loan process. If you can avoid it, don't open any new lines of credit or make any large purchases on credit, such as buying a new car. It’s best to speak to your lender before making any large purchases or even paying off your debt.

How can I increase my chances of getting a mortgage?

Having a steady work history for the last couple of years, paying down high-interest debt, and saving up for a downpayment all increase your chances of getting a home loan. Before applying for a mortgage, take every opportunity you can to boost your credit score and payment history.

Is there anything I shouldn't do during the mortgage loan process?

Avoid these moves, any of which can jeopardize your loan approval.

Don't:

• Change jobs
• Change the way you're paid
• Deposit cash into your accounts
• Make any large purchases like a new car
• Co-sign other loans
• Change bank accounts
• Apply for new credit cards
• Close any credit accounts

Contact your loan officer for advice if any of the above scenarios are a possibility.