Once you have successfully completed the loan application, the lender will review the application, run your credit report (sometimes credit is run automatically as you are completing the application) and let you know the documentation required to complete your mortgage loan application and be able to issue a pre-approval letter to you.

     *Pro Tip – Make sure that if your credit reports are “frozen/locked” with the credit bureaus, to temporarily unfreeze them prior to applying for the loan.  Mortgage lenders run credit from all 3 credit bureaus (Experian, Equifax, and Trans Union), so ensure all 3 are available to the lender.

Most lenders now handle this initial process completely online and will communicate with you via email, text, or phone, whichever you prefer to follow up on the remaining documentation.  The days of in-person mortgage applications and bringing in stacks of paperwork are mostly over unless you insist on spending a few hours at a bank to get your mortgage pre-approval process started.

DOCUMENTS AND A FEW MORE DOCUMENTS

Depending on your individual situation, you should prepare to have the following documents ready to upload/email to the lender to complete your pre-approval once your loan application has been completed:

• Most recent 2 pay statements (if paid 2x per month) or 4 pay statements if paid weekly.
• Last 2 years W2 statements from your employer if salaried or hourly employee.
• Most recent 2 months complete bank and/or investment account statements with ALL pages of each statement.  Screen shots and account summaries are not accepted so obtain the PDF regular monthly/quarterly statements are best.

If you are self-employed and/or own income producing real estate/side businesses, be prepared with the following documentation as well:

• Most recent 2 years complete Federal Tax Returns with all schedules (personal and business). Year to date P&L (profit and loss) also required for current year income along with filed extension and evidence of payment to IRS if applying after April 15th but before October 15th.
• Recent mortgage statement(s) for any properties you own that are not free and clear.
• Current property tax and home insurance statement/bill for any free and clear homes or properties where these items are not included in the mortgage payment.
• Recent HOA (homeowners association) dues bill or statement for any real estate with maintenance fees and/or association dues.

Once you have provided all of the necessary documentation to your lender, you will be notified of your maximum purchase price pre-approval for a home or condo depending on your down payment, interest rate and loan program.  

Congratulations!! You can now confidently pursue your real estate purchase knowing that you are pre-approved and can submit an offer to purchase once you have located a suitable property.

     * Pro Tip – Documents provided to your lender are technically valid for 120 days (4 months) but if it takes you more than 60 days to get an accepted purchase agreement, expect to be asked to provide updated pay statements, bank statements and W2 (if the new W2 is available).

ACTUAL PURCHASE TRANSACTION

Now that you have an accepted purchase agreement with a projected closing date 30-45 days after acceptance, here are the next steps to get the ball rolling on your formal mortgage loan approval process:

1. Notify your lender right away that you have an accepted purchase agreement as he/she may not be notified right away by the real estate agent or title/escrow company.
2. Discuss interest rate options with your lender and request a Loan Estimate so that you can understand your interest rate options and expected total cash needed to complete the transaction based on the current interest rates (mortgage rates change every business day with the financial markets).  
3. Provide your lender with any updated or additional documents necessary to get started on the loan process.
4. Start shopping for your homeowners insurance for your home. Depending on where you are purchasing, you may be required to obtain hurricane/wind, flood and/or earthquake insurance in addition to standard hazard insurance.  The lender will need a quote from your insurance agent to coordinate directly with them to provide the necessary information to finalize the policy.  The first insurance premium will be paid through escrow at closing and then usually be included in your mortgage payment where your lender will automatically make the insurance payments for you going forward.

WHAT TO EXPECT YOUR FIRST 7-10 DAYS.

The first week of your purchase transaction is the busiest as you will receive requests from multiple different sources to get the ball rolling to transfer ownership from the seller to you.  Here are some things to look out for in the first 7 to 10 days:

1. Coordinate with your real estate agent to schedule your home inspection.   This will be a thorough inspection by a licensed home inspector that you should expect to pay for once it is complete.  The inspection report describes all of the aspects of the home and identifies any potential issues with the property. Discuss any concerns you have with your real estate agent before moving forward with the transaction. 
2. The lender will then request that you provide credit card information or other payment so they can place the appraisal order.  The certified property appraiser has to be paid once the appraisal is complete, that is why you make a deposit up front.  Expect to see a credit for this fee at closing indicating that it was paid in advance.
3. You will also receive an escrow/title opening instructions package to complete.  It is important to fully complete and return so the title/escrow company handling the deed transfer will know how your name(s) will appear on title and how you plan to hold title.  You would usually hold title as Tenants by the Entirety for married couples,  Tenants in Severalty for individuals, Joint Tenants for unmarried couples, Tenants in Common for several individuals or in your Revocable Living Trust.  Title in an LLC is not allowed at this stage as residential mortgage loans cannot be made to companies.
4. If you will be taking title to the home in the name of your Revocable Living Trust, be prepared to provide a full long form copy but in some cases, a Trust Certification or the short form of the Trust may be sufficient.
5. Sometimes additional inspection are recommended/required, such a termite/pest inspections, septic system inspections, radon and/or gas line inspections, etc.  Check with your lender and/or real estate agent to see what they would recommend or if any of these are required to complete the transaction.

Once you have satisfied all of the requests for documents and paperwork in the first week to 10 days, the next two weeks or so will be fairly quiet as your loan approval and title work is being processed.

THE FINAL 14 DAYS OF THE PURCHASE TRANSACTION.

Approximately 3 weeks into your purchase transaction or sooner if you have a 30 day closing, you should see the following updates and required actions to prepare for closing:

1. Completed appraisal report delivered to you and your lender to validate that the market value of the property meets or exceeds the sales price of the property.  Your loan is based on the appraised value or sales price, whichever is lower.  If the appraisal comes in lower than the sales price, have a discussion with your lender about the potential impacts on your loan approval.
2. Initial loan approval issued by the lender’s underwriter.  This will be a conditional loan approval that stipulates items that are needed from you and other parties involved in the transaction to complete the final approval of your purchase loan.  The lender’s underwriter will typically review your loan file twice, once for the initial/conditional approval and once again for final approval to clear all remaining conditions in preparation for closing. 
3. It is very important you gather and provide all of the remaining items necessary for final approval as quickly as possible.  Depending on how efficient your lender operates, the closing timeline could be impacted by how responsive you are with the remaining items needed to issue the final approval.  If you haven’t already selected an insurance agent and quote for your home, do so as soon as possible.  
4. At this point, you should already have notified the escrow/title company with your full legal name(s) or trust name(s) and how you intend to hold title so they can prepare the deed for the lender’s final loan approval.

THE CLOSING STEPS OF THE TRANSACTION.

1.  Once you have received the final loan approval from your lender, your loan officer and escrow/title agent will begin the coordination for the closing signing appointment.
2. Your lender will also issue you the Closing Disclosure at this time (some issue this prior to final approval but most issue afterwards).  Your initial Closing Disclosure is the breakdown of all of the final costs/fees in the transaction and estimate of your remaining cash due at closing.  You must sign/e-sign this document right away as this starts a 3 business day clock before you can sign all of your closing documents and close/consummate the transaction.
3. Behind the scenes, during this 3 business day period, your lender and the escrow company will be balancing their figures out to ensure they both match all fees and cash to close and your lender will issue a final Closing Disclosure with your closing documents that will be the accurate/balanced final numbers.
4. At the closing/signing appointment, bring a current Gov’t issued photo ID and your cashier’s check made payable to the title company for your remaining cash due.  You can also wire closing funds to escrow but, in almost all cases, you cannot provide closing funds via personal check.  Make sure closing funds only come from banks/financial institutions you have provided to your mortgage lender on the loan application.  Funds from a source your lender has not yet verified may delay your closing.

Congratulations, you have run the home financing gauntlet and are now a new homeowner!!  As you can see, this is a pretty complicated process as there are many people and different entities involved in successfully navigating this process and ultimately transferring ownership of the property from the seller to you.  It is a shame that none of this is taught in schools as some kind of basic financial knowledge.

Keep in mind that every State has different laws for real estate transactions.  Some are attorney States where you don’t work with an escrow/title company and most States allow for ownership transfer on the day of signing closing documents whereas others, like Hawaii, have a waiting period between signing and official closing.

This article is primarily just for informational purposes from the lender perspective and not all encompassing.  Just use this as a general guide on what to expect and hopefully, you will work with a professional mortgage lender that helps personally guide you through this complicated process in whatever State you are buying your home.