Processing your mortgage is easy - It’s simply verifying & updating the information you gave us on your loan application. Put that way you can see Processing isn’t scary, nor should it be a hard thing.
They more you can furnish in the way of documentation with your loan application the quicker and easier your loan will be. (hint: Watch the loan application video of you haven’t already)
On this page I’ll talk about what processing is, the various loan types, underwriting, time lines & what an underwriter is looking for to approve your loan, but first let me explain that all loans which are done to Federal Standards have almost identical procedures for every item no matter what loan type or what Lender. The policies, procedures, rules, paperwork, qualifying guidelines - virtually everything will be identical. Why? It’s all mandated by the Government.
A few of us Top Tier lenders have a better reputation within the industry. We are known for doing things the right way without cutting corners or skirting close to the lines and therefore we can do things a little more simply and with fewer hassles than the Big Banks or others which will make your whole loan & approval process much easier. Buying a new home ought to be fun and we try to be sure that the necessary evil of getting financing doesn’t interfere with your fun.
“BUT I DON’T WANT NO DANGED OLD GOVERNMENT LOAN!!”
Actually you do! If you want the lowest cost & safest loan for you with no hidden gotchas.
If loans are processed to govt. standards you to get a lower cost loan. That’s right “standard” or QM - “Qualified Mortgage” loans are cheaper than non-standard loans. And if you stop and think about it, it only makes sense.
So what are Government loans?
FHA, VA, USDA & Conventional loans are all done to federal standards. So a better question would be “Which loans AREN’T done to Govt. standards?” Almost none!
I don’t believe even your local, small town bank who has known you all your life & loves you can even do non-government loans on real estate anymore. If nothing else they’ve got strict federal banking regs they must follow on top of the Mortgage Regs. This ensures they approve fewer loan applicants and their closing costs & interest rates are higher than non-banks.
Also while some people think Credit Unions are different, they aren’t. As a matter of fact in many ways they are more complicated than Big Banks or real mortgage companies. But the bottom line is if you get a traditional mortgage then you’ve gotten a government loan.
The Dodd-Frank Act, given to us by the Super Majority in 2010 has standardized rule sets for all types of residential mortgages and they all now require written documentation for income, debts, etc. Which basically means if it can’t be documented, it can’t be counted. So be thinking of how you can best document any aspects of your situation or income that might need explaining.
“Portfolio” loans, as non-standard loans are known, don’t usually have the expanded qualifying guidelines that government loans do so they are usually more restrictive when it comes to qualifying - although we recently have gotten a few less restrictive mortgage types for Self Employed people and others with variable incomes.
A loan that doesn’t meet federal standards wouldn’t be a mortgage as you are used to thinking of them. It would more resemble a car loan, credit card loan or it could be a short term secured loan against your assets and would have to be renewed or paid off periodically.
So what I’m saying is that if you want the lowest cost loan, a long term
loan, and a loan with terms you don’t have to worry about, then you’ll
be getting a traditional mortgage done to federal standards.
I’m not trying to scare you, just prepare you.
Loans that we used to do in 5-7 days now take a government mandated minimum of 20-30 days. So most people allot more than 30 days to close when they write their contracts. As of 4/1/2018 the average time to close a mortgage in America is taking 49 days. We routinely can close people in about 32 days less and we’ve even closed a few in 20 days, but everything has to be perfect to do that. And by perfect I’m not just talking about you. I’m talking about the appraiser, title company, surveyor, attorneys, employers, etc., etc.
If you want to close in the least amount of time you will begin the loan process prior to even looking at homes. This can cut 10 or more days off the closing process.
But being as the government is involved in your mortgage it should come as no surprise that a lot of people are involved, there are a lot of steps and more than a little paperwork.
The scary part, TO US, is that there are a few stages in the processing where we have to depend upon the work ethics & the work load of other people such as the appraiser, underwriter, attorney or the title company.
This means there are portions of the loan process that are outside the control of any lender. This is especially true as we get closer to closing. This sometimes makes it very difficult to plan. Which means definitive closing dates & times are hard to come by until very close to the end.
Now let me step you through the loan process of a typical mortgage so you can see how it’s done. I’ll also explain WHY some of these things are done this way. This will help you plan better plus it will show you where you might be able to help us &/or speed things up a little.
Processing the Loan
After the loan application is taken we “process” the loan which simply means we verify & update all the information you gave us in the loan application.
In the video Mortgage Loan Application - The Road Map to Success, I showed you exactly what information we need to gather and how we’ll process it so there’s no need go into all that again. In the video we also talked about all the different variables of your situation such as the different types of income streams and what you can do to enhance your chances for loan approval. If you haven’t, then you really need to go back and watch that video, it’s the heart of the whole loan process
Underwriting the Loan
After the processor compiles all of your information & verifies the documentation to support it, we prepare the loan for an underwriter. Our job is to tell your story in such a manner that an Underwriter wants to approve your loan.
As a safety measure, regardless of who the secondary market source is or where the underwriter is located (for instance, in the office or at another location), the underwriter is always out from under the direct control of the origination staff.
Let me help clear up some terms you hear from time to time, a primary market source is the person who you have contact with - the people & company who do the work on & originate your loan.
The secondary market source will be places like Fannie Mae, Freddie Mac, Ginnie Mae, Insurance pools, big banks, etc. etc. They are the ultimate source of all mortgage money and they buy the loans from us or furnish the funding in some fashion. The secondary market cannot be reached by the consumer.
Whether you think you are dealing with a direct lender or an intermediary ALL LOANS are made with the possibility they could sold in the secondary market and consequently are completed to cookie cutter federal standards. In the end, no matter what they tell you up front, it is a rare loan that isn’t sold. But whether it is sold or retained in-house, doesn’t make any difference in qualifying, costs or terms. Mortgages are processed to the same federal guidelines & standards regardless of who does the loan.
FYI - Almost every loan made will have a different SERVICER from the loan owner.
The Servicer is who you make your payment to. They do this to simplify things for you. Normally the Servicer will be set up within 30 days of your mortgage closing so expect a name change almost immediately. In other words the person you make your loan payments too probably isn’t the one that owns your loan.
This way if your loan is ever sold, who you send your payments to probably won’t change. So even if the loan payments go to the same people you got your loan from it doesn’t mean they didn’t sell the loan, they simply retained the servicing rights.
But even if your loan is sold later, no terms can change. If you got a fixed rate loan the only time your house payment will change is when the cost of insurance or your taxes change.
Now back to the underwriting process. After your loan is submitted it is reviewed by a person holding the title of Underwriter. They are tasked with making sure the loan package submitted meets the guidelines required for loan approval and that the data you supplied doesn’t raise any other qualifying questions.
Questions that affect your ability to qualify like “does your income look as stable & consistent as the house payment?” “What IS that extra deduction on your paystub?” “Is it an undisclosed loan or could it be child support?”
Once the loan has been underwritten, they will issue what's called a Conditional Approval. This approval will also usually include a list of items called "conditions", "stips" or “stipulations” that the lender & you need to meet in order to be sure the loan meets underwriting & secondary market guidelines to finalize the loan approval for closing and funding.
We used to know all the standards and rules for all loans and rarely had any approval conditions, but the new rules and regs make it so that most loans nowadays seem to have at least a few simple, housekeeping type approval conditions. These conditions are usually things like they want the latest copy of your bank statement or pay stubs, but it literally could be anything.
You and your processor will be collecting the items needed for submission to the Underwriter. Some of the items may be from third parties, such as banks, appraisers, title companies, insurance agents, etc. Other documents will come from the borrower.
Your closing time will be determined by how quickly we can get these items from you!
Timeline Overview
The timing of each step of the loan process is determined by many factors including, but not limited to: the lender's (or secondary market’s) current processing flow times, third party response times (your boss, your landlord, the appraiser, title company, insurance agent, etc.), as well as the time it may take for you to gather any information that is requested. So the more information you can furnish us at loan application the faster your loan will go.
Once all of the documentation is compiled, it is submitted to underwriting at the secondary market source for review. This can take several days depending upon how busy they are. If there are no further items outstanding, you are issued what's called a "Clear to Close." And then we will request closing documents to be prepared and sent to the title company.
During Processing several things can be happening at one time. We can be ordering the title work, Social Security verifications, copies of your tax returns directly from IRS, the appraisal and any verifications we need all at the same time.
Once your loan is through being Processed things change & begin to happen sequentially. Which means we can’t go onto the next step until the first step is completed.
For instance, we can’t begin the closing process until the Underwriter is completely through with the approval process including verifying all conditions.
This is also the step that all lenders are at the mercy of the work ethics and work load of a third party. If any person in the process is out sick, on vacation or has a backlog of work then it slows the whole process down.
This is the step that has us biting our nails because there’s nothing we can do to help or speed things up other than beg. The system is put together this way to help safeguard you, but it drives us crazy.
SO WHAT ARE THE UNDERWRITERS LOOKING FOR?
In the industry it’s known as the" 5 C's "
Risk and compensating factors can be grouped into the following 5 categories:
• Credit refers to a borrower's ability to manage debt & your historical willingness to repay your debts, especially your old rent or mortgage. We look at your credit report to see your credit loads and how willing you’ve been in the past to pay other debts.
• Capacity is a borrower's ability to pay their obligations. (debt to income ratio)
• Cash or Capital refers to a borrower's financial resources and strengths. Have you been able to live at your present housing expense & manage your money well (save $$)? (this is a much more important step than you realize) Do you have savings demonstrated by disclosing other things of value such as household belongings, motorcycle, boat, tools, furs, jewelry, etc.?
• Collateral is the security for the loan. In other words the house is approved as well as you. And this is why you can’t be truly 100% Pre-Approved for a mortgage. A lender can only say that if you buy the proper house then you’d be Approvable. We are one of the few lenders that can issue a 100% person approval to YOU prior to finding a home. This way we only have to get the property approved which greatly shortens the time to close and allows you to offer the Seller a much stronger offer which increases your negotiation ability. But that would mean you’d need to make a loan application prior to finding a home. Now you can see why I said on the READ ME page that this was a good step to do.
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•Characteristics are other factors related to the transaction that could impact the risk of a loan. Do you appear to be stable? Stable in both address history & job. Are there unexplained gaps in any part of your story? Where did your money come from? ALL monies other than from payroll must be sourced! In other words we have to prove it wasn’t a Gift, Loan or Drug money.
Timeline
“Normal” Underwriting times have always been 2-3 days, but with the advent of the Dodd-Frank Act “normal” underwriting times have become longer.
5-7 working day underwriting times seem to have become the “new norm”. But 2-3 days in underwriting is still the goal of every lender.
Once you have your Clear To Close we still have to coordinate the Closing Department, Attorneys and the Title Company. This normally takes another 2-4 days depending upon everyone’s work schedules.
FYI- The end of the month is the worst time of the month to close! (and also the most expensive) Realtors and Builders push most closings to the end of the month which makes everyone super busy and means you’ll need to add another day or two to the process time line.
Why is the end of the month the most expensive time to close? By closing at the end of the month your first payment comes due in just 30 days, BUT if you’d have closed the very next day on the 1st you’d have been able to skip a payment and your first payment wouldn’t be due for 60 days after closing.
Realtors and Builders look at only one aspect of your costs and will tell you that you’ll pay less interest if you close at the end of the month, but paying interest is less expensive than paying a house payment.
Now click over to Getting To Closing to see what happens next.
