Mortgage Approval Process
Once you have collected all of your documents and completed the application, your lender begins to process your application and verify the information you have provided.
There are 4 key factors involved in the mortgage approval process:
1. Income: This is the most important factor, because your ability to comfortably afford the home loan, as well as your other obligations, is the key to successful homeownership.
2. Your payment history: Your payment history and credit score are indicators of your likelihood to make payments in the future. Your payment history plays a role in the mortgage loan process because it helps lenders evaluate your ability to manage debt. It reflects how repayment of your bills has been handled in the past. For cases in which borrowers do not have an extensive credit history, lenders may consider alternative payment records, such as rental payments and utility bills.
3. The source of funds: Your lender will verify your down payment funds and ensure that you have enough money to cover closing costs.
4. The value of the property: Your lender will carefully look at the appraisal of the property you are purchasing to verify that it meets or exceeds the purchase price. A lender will order the appraisal to be performed by one of their approved appraisers. This cost will appear on the Closing Disclosure as part of the closing costs.
What to expect when applying for a mortgage:
The "Know Before You Owe" or TILA RESPA Integrated Disclosure (TRID) rule from the Consumer Financial Protection Bureau (CFPB) began on October 3, 2015. The rule not only set forth new mortgage disclosure forms, it also changed the way real estate transactions are processed and closed. By understanding what is expected from you, you can help speed the process.
Expect these Forms
- You will receive the Loan Estimate (LE) no later than three business days after an initial application.
- You will receive the Closing Disclosure (CD) at least three business days before closing.
- Together, these disclosures detail the consumer's monthly payment, the costs of getting a mortgage, the costs to close and other pertinent information about the loan.
Know the Timelines
The rule requires that you be given or mailed:
- A Loan Estimate (LE) within three business days after you apply by providing six items of basic information: name, income, Social Security number, address of the property for the loan, estimated value, and the mortgage loan amount sought;
- A Closing Disclosure (CD) at least three business days prior to closing, so you have time to review it;
- An additional three business days to review a revised CD if you or your lender make certain changes to the annual percentage rate (APR) or the loan product after you receive the CD; and
- At least seven business days to review the paperwork between the time you receive a LE and the time you close.
Help Speed the Process
Tell your lender to move forward as soon as you finish shopping and are comfortable with your choice of loan. You are allowed ten business days to decide, but you do not have to wait that long:
- Give your lender any documents necessary to complete the loan as soon as possible (e.g. copies of tax returns and paystubs, a copy of your purchase contract);
- Read the LE, and any revisions to the LE, carefully so any questions can be resolved early in the process;
- Avoid last minute changes to the loan to prevent the delay of an additional three business day wait;
- Work with your real estate agent and the seller's agent to conduct home inspections, order reports (e.g., pest inspection), and clear any contingencies as early in the process as possible;
- Schedule your final walk through well before the CD is issued, if possible;
- Tell your lender as soon as possible about any changes to the transaction that you think might impact the loan or the closing
To avoid delays in your mortgage approval process, make sure to stay in touch with your lender and your real estate agent throughout the process to ask questions and respond quickly to any requests. This will ensure that your mortgage and home purchase go as smoothly as possible.