Loan Application Process
There are a few steps that you will be required to do before purchasing a home. Most sellers and realtors will want you to be pre-qualified for an amount so they will know what you can afford. Every mortgage lender has their own way of doing this so it can vary but the outcome should be the same. The lender will ask you some general information so they can pull your credit report. You will need to provide your full legal name, current home address, Social Security # and date of birth. The lender should also have you sign a consent form to authorize them to pull your credit report. They will also need to know the name of your employer, how long you have been on the job and your gross income and if you plan on putting any money down for the purchase. If you are putting any money down the lender will need to know where the money is coming from and if the money is seasoned. On most loans your funds need to be seasoned. What this means is that the money must be in your account for at least 60 days from your closing. Large deposits going into your account will need to be verified. Generally the funds will need to be your own funds. There are programs that allow "gifts" from another person that can be used as your own funds. With this information the lender will be able to determine what, if any, loan they can offer you. At this time you should be told what terms, rates and payment options you are qualified for.
Loan Status Report (LSR)
The seller/realtor will want the lender to provide a Loan Status Report (LSR). The "LSR" is a form that will have the lender state what you can qualify for and the terms of the loan that you are qualified for. The form will also have the lender provide what information they have reviewed to come to their conclusion. Unfortunately this form does not hold the lender liable for anything. I have seen many people get a LSR that aren't really qualified for what the lender has put down on paper. There are ways to protect yourself from this happening.
Complete Loan Application
If you are serious about purchasing a home and not just curious what it looks like you can qualify for, you will want to complete a full loan application (1003). To complete the loan application the lender will need to go a little deeper than the information you have already provided. You will need to provide your residence history for the past 2 years, employment history for the past 2 years and name of all institutions where your money is being held. You will also need to disclose any child support/separate maintenance payments you either pay or receive and any information on any other properties that you own. The last page of loan application are the declarations and acknowledgment/agreement sections. Once you have completed the application the lender will input it in their system so it can be "set-up" and disclosed upon. The lender has 3 business days from the day you complete application to disclose a full loan package to you.
Automated Underwriting System
With the information you provided your loan will be run through an automated underwriting system (AUS). This system will give a recommendation if you are approved or not. It will also tell the lender what documentation you must provide and any other requirements that are needed to approve the loan. There are circumstances that the lender may not get an approval through these systems but still be able to approve your loan. This is what we call a manual underwrite. An underwriter will review all the information to determine if they can override the systems recommendation.
Loan Package
By this time you should have your loan package. The loan package will consist of the loan application, good faith estimate, truth-in-lending and all other required loan disclosures. You will need to sign all the original disclosures and get them back to the lender. The loan officer or processor should have also provided you a list of the required documentation for you to provide. Generally you will need to provide the following documentation: 2 most recent paystubs, 2 years w-2 forms (tax returns if self employed), 2 most recent bank statements or retirement account statements and the name and phone number of your insurance agent for the homeowner's insurance. These are the general requirements and depending on circumstances you may need to provide more or less documentation than this.
Approval Process
Once the lender receives the required documentation your loan will go back for conditional approval. This is when an underwriter will be reviewing and verifying all information. The loan processor will get the file back from the underwriter and send out your conditional approval letter. At this time you may be asked to provide more documentation if anything was missing from the file or if the underwriter determines it is necessary. The lender also will be ordering an appraisal to determine the value of the property. The appraisal will also need to be reviewed by an underwriter to make sure it meets all requirements. Once all these conditions have been met and your loan is fully approved, the loan documents will be sent to the title company. The title company will download all the information and create a pre-audit for the lender to review. Once the lender approves the pre-audit you will be given a call to go over all the final information. At last you get to go to the title company and sign the final loan documents.
This whole process generally takes about 30 days to complete. Most contracts are written to give you and the lender enough time to have all this completed. If you are prepared ahead of time to provide this information the process can be very easy. Obviously finding a lender that you are comfortable with and will explain everything through process is most important. You also want to update the loan officer during the process if anything has changed in your circumstances. Try not to buy anything or use credit during this process. If you feel it is necessary for you to do so, make sure and tell the lender.