The Loan Approval Process is relatively simple but can seem very mysterious if it is never explained to you. The best news ever is that it takes less and less time these days.
No matter how fast, however, every mortgage application has to go through these steps:
The key to the loan process going smoothly is the initial interview. At this time, we make every effort to obtain all pertinent documentation so that unnecessary problems and delays can be avoided. To make sure you are prepared, see our Application Checklist.
Sometimes immediately, but in no case more than 24 hours after application, we request a credit report, appraisal on the property, and any verifications required to confirm information that was not documented at loan application. These could include employment, bank account or rental verifications, for example.
As we receive any information requested, we review it for any potential problems and request additional information, if necessary, to solve them. We keep you aware of what is going on through status reports throughout this period. In the past, it often took 60 days to process a loan. That is quite unusual these days. We often can have loans approved and closed in two weeks. It will depend upon your individual circumstances.
Once all of the documentation is in, the loan officer reviews our current programs to make sure that the borrower is getting the best rate and terms. The loan processor then puts the loan package together for the underwriter’s review.
Final loan approval generally takes anywhere from 24-72 hours. (An original credit approval may have been provided upfront, in a matter of hours. This review will also encompass the property). All parties are notified of the approval and any loan conditions that must be satisfied before the loan can close. The loan approval is the beginning of the closing process.
Documents Are Prepared/Reviewed
Within 1 to 3 days after loan approval, the loan documents such as the note and deed of trust or mortgage are completed and sent to the title company or attorney’s office. The escrow officer or attorney calls the borrower to come in when the papers are ready for final signature. At this time the borrowers are told how much money they will need to close the loan.
Once all parties have signed the loan documents, the loan is funded. The documents are then returned to the lender who reviews them. If any document was incorrectly completed, the lender will contact the appropriate parties for correction.
When the paperwork is complete, the lender or title company will record the documents serving as the lender’s security for the mortgage loan at the county recorder’s office.
The mortgage lender will provide you with a coupon book, monthly billing statement or option to have your payment automatically drafted each month.
A one-time charge imposed by the lender to lower the rate at which the lender would otherwise offer the loan to you. Each point is equal to one percent (1%) of the mortgage amount.
For example, if a lender charges two points on a $80,000 loan this amounts to a charge of $1,600.
An escrow account is a separate account that holds funds for the purpose of paying bills such as homeowner’s insurance and property taxes.
Funds to cover these expenses are deposited into the account each month along with your monthly payment and then pays the bills for you when they come due.
By taking the annual amounts charged for homeowner’s insurance, property taxes and other annually paid items and dividing them by 12, the escrow department establishes a payment amount that is added to your monthly principal and interest payment.
Spreading the cost of these expenses over 12 months makes it easier for you to budget those expenses, and you won’t have to come up with additional cash when bills are due.
For some loans, escrow accounts are a requirement.
Application Fee – An application fee may frequently include charges for property appraisal and a credit report.
Appraisal Fee – A fee charged by an appraiser to render an opinion of market value as of a specific date. Required by most lenders to obtain a loan.
Processing Fee – This fee is paid at closing. The Processor is the person who handles all paperwork requirements in getting your loan approved. He/She obtains verifications from your bank, employer, and other sources.
Title Search and Insurance Fees – The fee related to a check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding and Title Insurance to protect the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of a property.
Origination Fee – The fee charged by a lender to cover administrative costs incurred during the processing of the loan, often expressed as a percentage of the loan amount.
Recording Fees – Fees charged by the County Recorder’s Office for recordation of Deed, Mortgage or Deed of Trust, and, at times, additional documents requiring public notice.
A ratio determined by dividing the sales price or appraised value into the loan amount, expressed as a percentage.
For example, with a sales price of $100,000 and a mortgage loan of $80,000, your loan to value ratio would be 80%.
Loans with an LTV over 80% may require Private Mortgage Insurance.
A commitment you obtain from a lender assuring you a particular interest rate or feature for a definite time period.
Provides protection should interest rates rise between the time you apply for a loan, acquire loan approval, and, subsequently, close the loan and receive the funds you have borrowed.
The Disclosure is designed to give you information about the costs of your loan so that you may compare these costs with those of other loan programs or lenders.
Annual Percentage Rate
The Cost of your credit as a yearly rate.
The dollar amount the credit will cost you
The amount of credit provided to you or on your behalf.
Total of Payments
The amount you will have paid after you have made all payments as scheduled.
Q. What is the ANNUAL PERCENTAGE RATE? (Box “A” above)
A. The Annual Percentage Rate (A.P.R.) is the cost of your credit expressed as an annual rate. Because you may be paying loan discount “points” and other “prepaid” finance charges at closing, the A.P.R. disclosed is often higher than the interest rate on your loan. This A.P.R. can be compared to the A.P.R. on other loan programs to give you a consistent means of comparing rates and programs.
Q. Why is the ANNUAL PERCENTAGE RATE different from the interest rate for which I applied?
A. The A.P.R. is computed from the Amount Financed and based on what your proposed payments will be on the actual loan amount credited to you at settlement. In a $50,000 loan with $2,000 Prepaid Finance Charges, a 30 year term and a fixed interest rate of 12%, the payments would be $514.31 (principal and interest). Since A.P.R. is based on the Amount Financed ($48,000), while the payment is based on the actual loan amount given ($50,000), the A.P.R. (12.553%) is higher than the interest.
Q. What is the FINANCE CHARGE? (Box “B” above)
A. The Finance Charge is the cost of credit expressed in dollars. It is the total amount of interest calculated at the interest rate over the life of the loan, plus Prepaid Finance Charges and the total amount of any required mortgage insurance charges over the life of the loan.
Q. What is the AMOUNT FINANCED? (Box “C” above)
A. The Amount Financed is the loan amount applied for, minus the Prepaid Finance Charges. Prepaid Finance Charges include items paid at or before settlement, such as loan origination, commitment or discount fees (“point”), adjusted interest, and initial mortgage insurance premium. The Amount Financed is lower than the amount you applied for because it represents a NET figure. If you applied for $50,000 and the Prepaid Finance Charges total $2,000, the Amount Financed would be $48,000.
Q. Does this mean I will get a smaller loan than I applied for?
A. No. If your loan is approved in the amount requested, you will receive credit toward your home purchase or refinance for the full amount for which you applied. In the example above, you would therefore receive a $50,000, not a $48,000 loan.
Q. What is the TOTAL OF PAYMENTS? (Box “D” above)
A. This figure represents the total amount your will have paid if you make the minimum required payments for the entire term of the loan. This includes principal, interest and mortgage insurance premiums, but does not include payments for real estate taxes or property insurance premiums.
Private Mortgage Insurance is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults.
Private Mortgage Insurance is generally required for a loan with an initial loan to value (LTV) percentage in excess of 80%.
In most cases, this will mean that you will have to pay Private Mortgage Insurance if your down payment is less than 20% of the value of the home you are purchasing or refinancing.
Mortgage brokers are federally licensed firms or individuals who sell loan programs on behalf of lenders.
Mortgage brokers facilitate your search for the most suitable mortgage product – but do not process any loans – every loan is sent to the lender (banker) for processing.
In comparison, Mortgage lenders (bankers) originate the mortgage loan, loaning you their funds and closing the loan in their name.
Mortgage300 is a federally licensed, Fannie Mae & Freddie Mac, mortgage lender.
Interest Rate – The interest rate is the cost of borrowing the principal loan amount. It can be variable or fixed, but it’s always expressed as a percentage.
Annual Percentage Rate (APR) – The cost of credit on a yearly basis, expressed as a percentage. Required to be disclosed by the lender under the federal Truth in Lending Act, Regulation Z. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Does not include title insurance, appraisal, and credit report.