Part 5A: A Look at the Loan Process

Part 5A: A Look at the Loan Process

At this part of the process, you have your dream home in sights, with an agent you trust to help to be your advocate in negotiations. You have an idea about which loan programs best fits your needs. Now, it’s time to find a lender to loan you the money. You can do this through a bank directly, or through mortgage brokers. A mortgage broker is a company that acts as an intermediary between lenders and borrowers, whether they are individuals or businesses. Mortgage brokers may target a specific audience, as well. For example, some mortgage brokers will only work with individuals, and do not do business mortgages, so be sure to ask when contacting them. At this point, you should definitely shop around with different lenders or mortgage brokers to see who would give you the best rate, without a slew of additional fees. At this point of the process is when you’ll speak with a Loan Officer.

A Loan Officer’s responsibility is to get all of the required documents from all parties and submit to the lender’s underwriters for approval. A good loan officer will explain in detail exactly what is needed, and go through all of the scenarios that may be specific to you and your credit history. For example, if someone has a bankruptcy in their past, loan programs have different requirements for the time that has passed before a home loan can be approved for that specific applicant. A decent loan officer will be able to tell you which program would be best, as well as let you know exactly what documents are needed. A better loan officer will tell you exactly how to obtain those documents. It is ultimately the loan officer’s responsibility to make sure all of the documents received are accurate and required for the approval.

Once your file is submitted, the lender will usually send back what is called a Conditional Approval. The Conditional Approval is basically the lender stating that “We will approve this loan, but we need to have these conditions cleared first.” The lender will ask for a wide variety of items, usually related to income, assets, title information, Property Conditions and other miscellaneous items. Income conditions will typically be updated paystubs, verification of employment, and Tax Transcripts. There may be more required documents depending on the complexity of your file. For example, if you own your own business, then tax returns and profit and loss statements will also become a requirement for some loan programs to verify income. Asset conditions are your bank statements, 401Ks and/or IRAs. The lender requires at least the most recent 2 months of Bank Statements.  Title Company documents will be covered in more depth in a later section, as these documents are a bit more complex, but they are basically protects the ownership of the property, as well as protects the lender.

Property Conditions can consist of a water test, septic inspections, roof inspections, and appraisals. For FHA and USDA Loan Programs, Water tests are required if the property is on non-public water, like a well. Appraisals can usually trigger the need for additional inspections if the appraiser sees that these items are needed for the loan program. For conventional loan programs, these items are only required if the buyer wishes to have them done. Appraisals will have their own section later on, as there are a lot of information on them.

For Part 5B, we’ll examine the closing process.