Once you’ve found a home and are under contract, your lender is required to send you a Loan Estimate (LE). They have three days to do this. This form is the same for every lender. It helps mortgage applicants easily compare different offers. You’ll see an outline of the loan amount, interest rate, origination and other fees, closing costs, loan terms, expected monthly payment, property taxes, and insurance -- both mortgage insurance and homeowners insurance. It will also detail how the interest rate and payments may change in the future, prepayment penalties, negative amortization, or other terms unique to the loan requested.
Like what you see? Then it’s time to choose a lender (if you’ve received multiple loan estimates) so you can start to move through the processing and underwriting stages.
Income and employment verification happen once more before closing your loan. Expect a verbal verification of employment prior to your loan being funded. This ensures you have not stopped working since submitting your loan application. Similarly, a verification of deposit form is signed by your bank to verify your account balance and financial history.
A home inspection home inspection is a visual evaluation of a home’s accessible elements and overall condition. This on-site evaluation, completed by a licensed inspector, checks the performance of the home’s roof, driveway, foundation, framing, and the general condition of windows, doors, floors, ceilings, and walls. It also helps determine the performance of a property’s water heater, HVAC system, interior plumbing, and electrical components. It does not evaluate optional features of a home like swimming pools, hot tubs, kitchen appliances, irrigation systems, smoke detectors, alarm systems, or televisions.
A home appraisal is one of the most important parts of loan processing. An appraisal is an expert's unbiased assessment or of your home's current market value based on square footage, number of bedrooms and bathrooms, lot size, location, and condition to nearby homes of similar size and features (comparables or comps). An appraisal only considers what is a permanent part of the home, not the furniture or decor. It tells the lender what the home is worth so they can determine if the requested loan amount is appropriate for the home.
If your loan is conditionally approved, it means your mortgage underwriter is mostly satisfied with your application. However, there may be a few things that need attention. For example, if the borrower makes a large deposit to his checking account (one that is not from payroll) and the underwriter cannot determine the source, the file will receive conditional approval until the loan officer is able to document the source of the deposit. Once it is sourced, the file can move to final approval.
When a loan request has met the underwriting requirements and has been reviewed and approved by an underwriter, you will receive a commitment letter. The letter will indicate your loan program, loan amount, loan term, and interest rate. Though it, too, may include conditions that may need met before closing.
When all needs have been satisfied, the underwriter will give a final approval and "clear to close.” This means all conditions have been met, and it alerts the loan officer to schedule your closing. You are fully approved and ready to take on homeownership!