The Loan Process

"Should I apply for an online mortgage approval?" has replaced "How do I get a mortgage?" as the most popular question asked by prospective borrowers in recent years. The mortgage lending process, by definition, requires the submission and review of paper documents provided by you or third parties. This environment did not lend itself to effective online efficiency.

However, in recent years, many mortgage lenders have adapted their loan process to accommodate you in accepting your online mortgage application and approving it in a timely fashion. Assuming you are dealing with a legitimate lender, you can now confidently submit an online loan application, knowing your sensitive information is secure, and complete the mortgage lending process in an online environment. Some benefits include saving your time and gasoline running around town obtaining and submitting documents, speed of processing, approval, and closing, and, often, receiving better loan terms than might be available using other traditional sources.

With this excellent security, fast processing, and, sometimes, lower costs, submitting an online mortgage application is a wonderful choice in obtaining a mortgage loan. As always, do your homework. Make sure your lender is legitimate, offering loan terms you like, and ensure that you uphold your responsibility to get the documentation and information they need to get you approved for a mortgage in a timely fashion.

While the home mortgage process can appear to be a strange and mysterious function to a first time home buyer, mortgage loan processing is actually simple and straightforward. Every modern mortgage product has a list of specifications and requirements, like a master checklist of necessary documentation or qualifying factors. You, as the potential borrower, are required to submit documents that verify statements you have made on your application regarding income, assets, other debts, etc. Home mortgage processing staff reviews the information provided by you or third parties and approves its contents.

After all requirements for loan stipulations have been satisfied, your home loan application will be approved. Once again, after all items on the "checklist" have a mark next to them, your application will be sent to the closing preparation department.

Two important items provided by third parties are always required: A mortgage credit report and a full property appraisal. If your credit report shows any derogatory items, you will normally be asked to write a letter of explanation (LOE) to hopefully allow your report to be accepted. Likewise, if any items are discovered during the appraisal that need rectification before your mortgage closing, you will be notified and some arrangement between the seller and you will be negotiated. These are not common issues but need to be resolved if they appear.

Once the conditions for the loan you want are satisfied, the mortgage approval process is complete. That's it. The mortgage closing process will now commence.

The amount and type of information you need to make a mortgage application depends on a) the type of loan you want or need, and b) your financial situation. If you work as a salaried employee and want a full documentation loan, your documentation requirements will differ if you are an independent contractor seeking a stated income, stated asset mortgage loan. Assuming you are considering a full documentation loan and are a salaried or hourly employee, have the following information ready when you make a home mortgage application:

• Two or three recent pay stubs showing your regular and year-to-date income;
• Your most recent W-2, showing your total earnings from the prior year;
• Name, address, phone number, and, if applicable, e-mail address of your current employer;
• If you have been with your current employer less than two years, have the same information on your former employer;
• Collect the last three to six months of your bank or credit union statements;
• If a home purchase, have a copy of your Purchase and Sale Agreement ready;
• Current recurring debt balances and scheduled monthly payment information;
• If you have already examined your credit report and noticed derogatory information of any kind, prepare a letter of explanation (LOE) to submit to your lender concerning this account;
• If using a gift for some of your purchase down payment funds, prepare a "gift letter" showing the source of the gift, the amount, and any information that allows your lender to verify the availability of funds;
• If asking for a home improvement loan, have a complete description of your project, including specifications of materials to be used, estimated costs, and a written bid from a licensed contractor if your project is not a do-it-yourself adventure.

First, it's true that these costs (called "junk" fees) have increased in recent years. If you have closed one or more mortgages in the past 20 years, you have noticed the appearance of some fees that did not exist previously. While an obvious annoyance, the charging of these fees is not as negative to you as you might first assume.

Understand that most of these mortgage processing fee items have been created by competition. You might ask, "Doesn't competition usually lower prices and/or expenses?" The answer, of course, is yes. And, in most cases, this is exactly what has happened. The mortgage process, whether you make an in person or online loan application, involves mortgage processors and loan underwriters. They do not work for free and actually expect to receive a payroll check with some regularity. Loan and closing documents need to be prepared and, often, mailed via overnight delivery. Loan funds need to be wired and protected.

These mortgage lender expenses have always existed and, historically, the costs have been factored into your mortgage interest rate and paid from the income thereof. Competition for your mortgage loan has greatly increased, particularly with the influence of the Internet, where you can effectively conduct all of your home mortgage application needs. This hotly contested area has led many lenders to "shave" their offered interest rates to the bare minimum. This is a wonderful situation for you as the borrower. This is not just a warm and fuzzy feeling. For instance, saving 0.25% on your interest rate for a $200,000 mortgage written for 30 years will in turn save you thousands of dollars over the term of the loan.

Mortgage lenders still have the usual expenses related to the loan process and closing, but have greatly reduced their gross income. To compensate for this loss, they collectively decided to add these fees that are directly related to their expenses. Now commonly called junk fees, they are actually not the result of income greed but are generated by their decision to give you, the borrower, the lowest interest rate possible. The real question then becomes, "Would you rather pay some additional fees as part of your closing costs or save thousands of dollars over the term of your mortgage loan?" The best answer, financially, is rather obvious. Save the thousands and pay the hundreds.

If you want to make the mortgage loan process easier, do your homework. Should you already have a mortgage lender and loan officer with whom you are comfortable, use them again. Otherwise, use the Internet as the powerful knowledge source it can be.

Learn about a variety of lenders, the loans they offer, their current rates and terms, and the efficiency of their mortgage loan processing and closing functions. Once you have decided the type of loan you want (fixed or adjustable rate, full documentation or stated income, etc.) be prepared to have the required information ready at the time you make your mortgage application, whether in person or online. If you are not connected to the Internet, go to your local library and use their computers or read the latest newspapers and mortgage periodicals to become knowledgeable of the current market.

Just as all good mortgage lenders are ready, willing, and always prepared to accept your home mortgage application, you should be equally prepared to submit all required information to receive a mortgage approval in the fastest time period possible. If you're shopping for a new home and want to be treated like royalty by sellers and real estate brokers, obtain a real mortgage pre-approval, in writing, from your favorite lender. You'll be able to shop and negotiate price with strong confidence that you will be approved for a mortgage quickly - and easily.

A real mortgage pre-approval can be very important to you for a number of significant reasons. It is equally important to understand the difference between a "real" pre-approval or a "pre-qualification." Pre-qualifications are readily available from many lenders, but these are not much more than two minute mathematical calculations of your stated information regarding gross monthly income and monthly debt payments.

A true mortgage pre-approval process will analyze your real monthly income figures and your actual debt levels and monthly payment requirements. The lender will then prepare a written pre-approval letter for you, stating the conditions you'll need to satisfy to obtain a formal approval at the specified interest rate ranges and mortgage amount (usually a maximum you would qualify for) stated in your pre-approval document.

This is important for a number of reasons. If you're looking for a new home and can show a real pre-approval to any seller or real estate broker, you have instant credibility and substance. You can shop and negotiate for a property knowing you have qualified for financing and, assuming you can satisfy the conditions noted in your pre-approval letter, you will be approved for a mortgage you want. Knowing your required conditions in advance, you can prepare your necessary documentation before you make your home mortgage application, which will greatly hasten your approval and closing on your new home.

The time period from application to approval for a mortgage loan depends on a number of factors. The mortgage application process, while fairly consistent from lender to lender, will vary with different loan types. For instance, stated income, stated asset mortgage applications have much less paperwork to examine and verify than is necessary with full documentation loans. Therefore the mortgage processing time period is normally shorter with stated income loans.

Online mortgage applications, if you have your information ready, can often move to mortgage approval faster than using in person lenders. At the same time, many in person mortgage sources can also move with relative lightning speed if managed well.

If you assume two to three weeks from application to mortgage approval, you should not be disappointed. Don't forget, along with needing your information, your lender needs a completed appraisal to determine the property's fair market value (FMV), they may need to receive third party verification of one or more items, and they may need to do some documentation follow up activities. A stated income home mortgage application may get you an approval in around ten days to two weeks, primarily depending on how quickly your lender can receive a completed appraisal.

The question of how to get a home loan is often answered by focusing on the mortgage loan application and its processing. But the mortgage loan process is only half complete once you're approved for a mortgage. Actually getting a mortgage is not accomplished until the mortgage closing process is complete. The lesser known issue of closing requirements can be more complicated than the mortgage application process.

A title examination, which follows the "chain of title" for around 60 years, sometimes longer or sometimes much shorter if a mortgage was placed on the property only a few years ago, is always required. Although very rare, title problems can be difficult, if not insurmountable to solve. Fortunately, such serious problems are almost never confronted.

The time period to complete a title examination, prepare and review closing documents, of which there are many, and accomplish funding, normally takes around two weeks after mortgage approval. You should be aware that the closing process is different in the eastern part of the country versus the western U.S. In the east, the mortgage closing is held with buyer and seller together in the closing agent's presence, usually an attorney, and all documents are signed by all parties at the same time. The closing agent is responsible for all funds disbursement.

On the left coast, closings are held "in escrow", with buyers and sellers signing documents separately, sometimes in the presence of a notary public and not the escrow/closing agent. After all documentation is signed and executed, the escrow agent disburses all cash and mortgage proceeds to the appropriate parties. Even though the mortgage closing process is quite different in the east and west, the time period from approval to closing is normally the same, around ten days to two weeks.