Okay, you’ve got a signed contract in your hands. You applied for a preapproval several weeks ago and began shopping for a home. Your loan officer pulled a credit report and asked for documents providing evidence of enough cash to close. This amount includes not just your down payment, but also closing costs. While you shopped for a home, your lender simply waited for you to find a home to buy. You did, you have the contract, and the wheels begin to spin.
At this stage, it might seem a little quiet on your end. You’ve supplied all the requested documentation and you might think very little is going on but in reality that’s not the case at all. The very first thing you should do is order a property inspection. While your mortgage company doesn’t require one, it’s important that you do. Your real estate agent will provide you with a list of inspection companies for you to call. From light switches to sink disposals to hot water heaters, the inspector makes sure everything is in working order. Small items such as a light bulb that needs changing is something for you to note but the lender won’t mind. Cracks in the foundation, however, will give a lender pause. So much so that the loan cannot be approved. Once you’re satisfied with the inspection, the lender will then move forward.
The appraisal is ordered and depending upon local market conditions you should receive a copy of the appraisal within a week. An appraisal can be in the form of an Automated Valuation Model, or AVM, or it can be a full appraisal where the appraiser literally visits the property, takes pictures and researches recent sales in the area of similar homes. Your loan officer will give you an idea of this timeline. A title report is ordered, and escrow is opened. The title report will show if there are any outstanding liens against the property as well as show a chain of ownership.
After a week or two, your loan is submitted to the underwriter. The underwriter is the individual within the mortgage company that makes sure the loan package submitted meets all the approval guidelines for the selected loan program. Again, depending upon volume, you should have your approval within a few days. It doesn’t take very long for an underwriter to actually approve the loan, but it might take some time for your file to be reviewed. An underwriter might have 25 or so active files at any one time.
When your loan is fully approved, your loan papers will be ordered and delivered to your settlement agent. The settlement date is listed on the first page of your sales contract and while most closings do take place on that date, it’s always better to sign your papers a day or two ahead of your final funding. This is in case there are some issues that might come up as you approach your closing. Giving yourself a few extra days to address any issues is always a good idea. If possible, that is. Once both buyers and sellers have signed and the documents delivered back to the lender, the paperwork is reviewed. When the lender has determined the documents have been properly signed, the lender releases the funds for the loan.