Prequalification occurs before the loan process actually begins. The lender gathers information about your income and debt and makes a financial determination about how much house you may be able to afford. It’s a good idea to know what price home you can afford before you start shopping for one. If you are refinancing the loan on your existing home, then the prequalification process should help you decide whether refinancing is a good idea for you.
The application is actually the beginning of the loan process and usually occurs after you have found a property you want to buy or have determined that you wish to refinance the loan on your existing home. You complete a mortgage application for a particular loan program and supply all of the required documentation for processing. Various fees and down payment options are discussed at this time.
The lender will submit the application package to an automated underwriting system that provides the lender with the necessary documentation needed for your specific loan application. In some cases, the lender may also manually underwrite an application package. The originator’s processor reviews the credit reports and documentation to verify your employment, debt and payment history. If there are unacceptable late payments, collections or judgments, etc., the originator will request a written explanation from you. The originator also reviews the appraisal and/or survey and checks for property issues that may affect final loan approval.
The lender’s underwriter is responsible for determining whether the application package submitted meets all the lender’s criteria. If more information is needed, you will be contacted to supply more documentation. If the underwriter approves the loan, the lender issues a conditional commitment to lend, orders title insurance, works with you to clear all conditions to its commitment to lend, and then schedules a closing time. Conditions to the lender’s commitment may include problems with credit, income or the property that may arise during the processing and underwriting process.
The closing will occur after all conditions are cleared and the lender issues a full loan approval. At the closing, the lender funds the loan with a cashier’s check, draft or wire to the closing agent who disburses funds in exchange for the title to the property. This is the point at which you finish the loan process and actually refinance or buy the house, subject to the lender’s loan. Closings occur at different places in different states. For instance, some states require that the closing take place at a closing attorney’s office, while others use a title or escrow company.