The Home Loan Process
Unless you are fortunate enough to be in a position to pay cash for your home, you will have to go through the home loan process. This is where significant changes (effective January 1, 2014) have made the home loan process more complex than it used to be. Even if you have great credit and money in the bank, the home loan process can be a wild ride!
You may hear the terms “pre-approval” and “pre-qualification,” and you may hear them used interchangeably. In fact, they are two very different processes.
- Pre-qualification is a process that determines if a lender considers that you are likely to be successful in going through their home loan process. It is a “quick and dirty” look at your credit score and payment history. It is not the green light you need to begin shopping for a house. It is a marketing technique to get you into the office of a loan officer.
- Pre-approval is an in-depth, detailed look at your credit history, credit score, and other factors that will give a lender (and you) a good idea of what you can afford. A pre-approval letter will be issued by the lender indicating the amount for which you are “qualified” (the maximum loan amount for your home).
Some real estate agents will not show houses to clients who are not pre-approved; others will begin showing. (I prefer pre-approval, but in most cases I will begin showing if the pre-approval process has begun.)
After you have selected a property, the home loan process begins in earnest. It begins with the home loan application. Your loan officer will walk you through the home loan application, but some up-front preparation will be very helpful. Gather all your credit data: credit statements for all outstanding debts, including account numbers and current balances. Several months of bank statements are also required. The home loan process requires full bank statements, including any blank pages, and there can be no redactions.
The next step in the home loan process involves a loan processor. It is the responsibility of the processor to compile a complete file of your credit and employment history to support your application.
Next, the home loan process reaches its toughest stage: underwriting. It is the responsibility of the underwriter to ensure that the facts and figures on your application and other supporting documents are accurate. The underwriter will also consider the home you are buying and has the final word on whether or not you will be approved for the home loan. Because of changes in lending requirements, underwriters are very careful, and they may demand additional documents to substantiate absolutely anything they feel is necessary to meet those requirements. Underwriters do not take anything at face value and sometimes they don’t even believe what they see in writing. Don’t take it personally…just go with it!
Finally, you’ll get the best part of the home loan process: clear to close. This means that the underwriter is satisfied that you can afford the home, that the home has enough value to serve as collateral for the loan, and that you have permission from the lender to move forward with the purchase. All that remains is to sign the necessary documents to transfer the property to you at a meeting called a “closing.”
The home loan process is not a lot of fun, but with preparation and patience that new home will be yours before you know it!
