The Mortgage Process Step by Step: How Do Home Loans Work?
Get a head start on your mortgage journey, and precisely determine what you can expect.
Get a head start on your mortgage journey, and precisely determine what you can expect.
Figuring out how the mortgage process works can be frustrating, but it’s important to maintain a positive attitude. Sure, the process of buying a house takes time whether it is your first loan or your twentieth, but with the right product and some prep work beforehand, the time you need to invest can be much less.
Before we get into it, here are the eight steps of The Mortgage Process
Although the process can be stressful, On Q Financial has multiple touchpoints to make the process run smoothly. If you are looking for a home loan, our mortgage consultants are your best resource.
As a general estimate, you will want to look at a price no larger than 3x your annual income. You also want to make sure you have enough saved to pay for the origination costs and down payment which comes with your mortgage.
Saving for a home requires patience. It can sometimes take years to save enough money to begin your Home Buying Journey. However, there are some organizations and programs which can assist homebuyers with their costs.
To figure out how much house you can afford, you will need to review your finances. In general, you should:
Once you have that figured out, you can calculate what your estimated mortgage might be.
Understanding the mortgage program and rate you choose will be critical as it can be the difference between saving or spending thousands of dollars more.
Rates vary based on a variety of factors including market trends and the programs you choose. You can even influence the rate yourself by purchasing discount points. Discuss with an On Q Mortgage Consultant to get a personalized look at your situation and advice on which product would be best for you.
Preparation is essential to ensure your mortgage process goes smoothly. Your mortgage consultant will provide you with a list of documents needed for a loan.
Take the time to gather the listed records and create a separate file or folder so you can refer back to the documents should you need to. This prep work will keep the process running smoothly and keep the stress at a minimum for you. You do not want to be surprised to find you do not have your W-2 or tax return at the last minute!
Here are some of the documents required for a mortgage loan application:
You’ll need different documentation depending on your situation. Sometimes, additional documentation will be required after the underwriting process is complete, so it’s a good idea to stay organized and keep good records.
Most lenders will provide you with a pre-approval letter after reviewing your initial application. It does not mean your loan has been approved. This letter simply serves as proof that you are able to secure funding when you need it.
Most realtors and real estate agents will want you to have a pre-approval letter before showing you a home. A pre-approval letter will include a maximum amount for the loan allowing a real estate agent to show you homes within your price range and also tells the agent you are serious.
Because the pre-approval letter requires a hard credit check, it gives credibility to your ability to purchase. A pre-approval letter is typically required before any offer on a home is truly considered.
Here is where the documents you gathered come in. You will need to provide the following to begin your loan application and get your pre-approval letter.
Once you have found a home, your real estate agent will submit an offer to the seller on your behalf. The offer, along with closing dates and any contingencies, are laid out in your Purchase Agreement or Contract. When this is submitted, you have officially started the process of buying a house!
At this point, multiple parties will be handling your loan, so do not be surprised if you are contacted by someone other than your mortgage consultant or realtor like an underwriter or a loan setup specialist. This is all part of the mortgage application process. If you are unsure about anyone who has contacted you, reach out to your mortgage consultant, and they will be able to help you.
Once You’ve found a home, your real estate agent will submit an offer on your behalf.
Although you’ve technically already submitted your application when you applied for pre-approval, this is the point at which On Q Financial will take over and guide you through the rest of the process. It may seem like everything is happening at the same time, but this is when your submission becomes official. On Q will work tirelessly behind the scenes to make sure you meet your deadline.
If it has not already been provided, you may be asked for some more information. Here’s what you may need:
When your mortgage application is submitted internally, you will be able to lock your interest rate, usually for up to 45 days. Consider the market before locking so that you do not lock into a higher rate. Your mortgage consultant can provide more information on current rates. If you have already started your mortgage process with On Q, you can find more information in the Simplicity App.
The appraisal is a critical piece of information for your loan. It gives you the power to renegotiate with the seller if you find that the value is lower than the original estimate. Since the appraisal is to your benefit, you will want to order it fairly early, and you will also be the one to pay for it. Your home appraisal cost will vary, but you may be eligible for an “appraisal waiver.” Ask your mortgage consultant for more information.
Once an offer has been accepted, you will enter into an “inspection period” in which you will be able to perform inspections on the home. You will want to move quickly during your inspection period and hire any relevant inspectors to look at the house. Most lenders will require a general home inspection, and it is in your best interest. On Q recommends that you walk through the home with the inspector and ask questions about the state of the home you are purchasing.
Your home inspector will look at all aspects of the home, including:
The inspector will then provide a written report with action items clearly laid out. You may also want to order inspections or quotes for the items listed to get more information and offer more leverage for negotiations. If the inspection reveals significant issues, your lender may be hesitant to accept your loan.
Your lender will consider a number of factors before approving your loan. To make sure you receive a mortgage approval, you can keep in touch with your lender regarding your loan. Do not obtain any additional credit or make any large purchases during the process, as it could jeopardize your ability to qualify for the loan.
Some questions that your lender’s underwriters consider:
If you were in a good position when you started your loan application, just do your best to stay in that position, and you are likely to be approved.
Origination refers to the overall process of your lender, creating your loan. How long the process takes depends on when you submit the required documents, but the average is around 45 days.
How long it takes to buy a house depends on various factors, but with On Q Financial, the mortgage process can take as little as 15 days! Usually, the process will involve days or weeks of labor on the lender’s part and only a few hours for the borrower.
Loan processing is the first step in the mortgage origination process. This is the point at which your application is officially submitted. Processors will then look over your documentation and organize it so that the underwriters can evaluate it.
Loan processors are in charge of compiling all of the required documentation, so they may reach out to you during this time to provide any missing information. They will send you a loan estimate which details your loan and is the first of the disclosures you will receive.
After you apply for pre-approval, your lender is responsible for sending you a loan estimate within three days as required by law. While you can get an estimate using a mortgage payment calculator, this estimate is specific to the home you want to purchase and is tailored to your situation based on the documentation you have provided.
Whenever you receive any disclosure, you will need to sign and return it to your lender to signal your intent to proceed. If you take no action, your loan will be suspended.
Depending on the type of loan, you could receive a packet of documents the size of an encyclopedia. FHA and VA loans are particularly notorious for their long-form documentation and disclosures. At On Q Financial, the eco-conscious buyer can avoid all of the paper with E-Consent.
Loan underwriting can be a scary part of the mortgage process. The underwriter is the key decision-maker and will compare your qualifications against the loan program for which you are applying. Part of that comparison is assessing your risk as a borrower. In many cases, this process is automated, especially when it comes to risk assessment.
Even if the underwriter encounters a complication with your loan, this sometimes simply results in a conditional approval in which you will need to provide further documentation.
If you are issued a conditional approval, the underwriter will inform the processor and your mortgage consultant. Usually, you will need to provide additional documentation to satisfy the gaps in your application.
Here are some examples of what you may need to provide after a conditional approval:
Following your approval, you are likely eager to finish the process and get into your new home. You are almost there! Next, you will work with a title company to review your closing documentation and transfer the deed. Your lender will sometimes have a preferred list of title companies to use, but you can also look for one on your own if you so choose.
After you’ve received notice that your loan has been approved, you will receive a Closing Disclosure (CD) from your lender at least three days before your closing date.
You have the right to review your closing disclosure for at least three days prior to the closing date. The CD contains all of the fees that need to be paid, along with information about specific features of your loan. Your closing disclosure will be final once you sign and return it to your lender for review.
The signing of your closing documents is the last step in your loan process. Here are a few things to know before you close on your house.
Your property title will be transferred to your name at the close signing. You will meet with a notary who will guide you through all of the documents that require your signature. This is your last chance to review the terms of your loan and home documents, so take your time to review anything of which you are unsure.
Once everything is signed, the documents are sent to your lender. They will double check your signed documents to ensure everything is in order for your funding. If everything checks out, your mortgage company will set up your loan prior to your closing date.
After the mortgage has been funded, several things happen behind the scenes. First, your lender will likely order title insurance. Then they will package and organize your loan files and prepare them to be shipped and sold to investors like Fannie, Freddie, Ginnie, and Ellie Mae.
This may seem strange, but lenders are typically only in charge of originating your loan, which is then serviced by another company. Although there are some cases in which your lender will continue to service your loan.
After about a month, you will receive a goodbye letter from your lender and a welcome letter from your new servicer. Still, after closing, you are likely just excited to move in! You will coordinate with your agent for a handoff of the keys to your new Dream Home.
Your new servicer will communicate with you about how you will make your monthly payments. You will be able to contact them with any issues. Regardless of whether we service your loan or not, On Q Financial is always here to answer any of your questions.
Now that you are familiar with the mortgage process, you can continue confidently into your Home Buying Journey. Hopefully, we have shown you what sets On Q Financial apart from other lenders and helped make your mortgage process simple.
We hope you will keep On Q Financial in mind as you progress in your Home Buying Journey. Even after you have completed your mortgage process, you may need to deal with your lender again if you want to reduce your payments or pay off your loan faster. In a bonus step of the Home Buying Journey, we are going to cover How to Refinance.
We hope you will keep On Q Financial in mind as you progress in your Home Buying Journey. Even after you have completed your mortgage process, you may need to deal with your lender again if you want to reduce your payments or pay off your loan faster. In a bonus step of the Home Buying Journey, we are going to cover How to Refinance.Next Step: How to Refinance