You’ve been the smart one and received your loan pre-approval weeks ago. You have been working with your real estate agent and found the perfect house.
Finally, you submitted your offer and your agent just called you with the good news that it has been accepted! Now what??
Congratulations! The seller has accepted your offer and you now have a contract in place. You will most likely be asked to put down some earnest money (more on that here) and your real estate agent will forward that contract on to the lender.
The parties will agree upon an escrow company to handle the transaction, as well.
Once the lender receives the contract, they will immediately reach out to the escrow company for the specific escrow and title fees that will become a part of the transaction. Generally, the escrow company provides those fees within a day or two. Interestingly, by regulations, the lender must have the exact fees, based on the terms of the contract, before sending out the initial disclosures and Loan Estimate.
Initial disclosures are the preliminary documents that must be acknowledged and signed in order to move forward with your loan application. These disclosures outline the initial terms of the mortgage application and also include federal and state required mortgage disclosures. The majority of them can be signed electronically.
The most important items to keep in mind are the mortgage loan application, loan estimate, and program-specific disclosures. Initial disclosures let you know what you can expect in terms of cost, monthly payments, and loan structure.
*Action Item: These documents need to be reviewed and signed no later than 3 days from the date they were sent.
The Loan Estimate
A Loan Estimate is a three-page form that you receive along with the initial disclosures that tells you important details about the loan. Here’s what the Loan Estimate looks like:
The form provides you with important information, including the estimated interest rate, monthly payment, and total closing costs for the loan. The Loan Estimate also gives you information about the estimated costs of taxes and insurance, and how the interest rate and payments may change in the future.
When you receive your Loan Estimate, the lender has not yet approved or denied your loan application. The Loan Estimate shows you what loan terms the lender expects to offer if you decide to move forward.
Please note that this is only an estimate, and that by acknowledging receipt of it, the borrower is not committing to the terms listed there.
In most cases the interest rate is not locked nor the rate even agreed upon at this point.
A home inspection is the report on the overall condition of a home. A thorough home inspection gives the buyer details about a home’s structure, foundation, electrical, plumbing, and more. A home inspector checks the areas of a home beyond what a buyer can see on the surface.
This inspection is important because it helps the buyer know if a home may need costly repairs. What is uncovered during an inspection can become part of a sales negotiation between buyer and seller, and their respective real estate agents.
In some cases, a termite inspection may also be ordered, especially if it is a VA loan (a termite report can be required depending on the location of the property), or if you as the buyer request one.
The real estate agent, not the mortgage lender, facilitates this inspection.
Purchasing Homeowner’s Insurance
While it may seem like putting the cart before the horse, it’s important not to rush your insurance at the last minute. In fact, you can begin looking for an insurance agent as soon as you start searching for a home, which will offer you time to shop around and obtain multiple quotes. You may qualify for a discount if you bundle your home, car and life insurance with one company.
An insurance agent will discuss deductibles, coverage amounts and limits, personal liability coverage if someone is injured at your home, and other aspects of insurance and home ownership. Your lender will also require that you purchase flood insurance if your home is in a flood plain. Additional coverages, such as for wind and earthquake, should also be discussed with your insurance agent.
*Action Item: Have your insurance finalized one to two weeks after signing your purchase contract.
The next step in the process is verifying the value of the home, so, the lender orders a home appraisal.
A home appraisal is an unbiased report on the worth of a house in the fair market, performed by a trained and licensed individual.
Appraisals are needed to ensure the homebuyer, the home seller and the mortgage lender receive the accurate and true value of the real estate in question.
As mentioned previously, your lender orders the appraisal to be performed by a licensed appraiser through an appraisal management company. You can find our more about the appraisal here…
*Action Item: you, the borrower, are typically required to pay for it – outside of escrow and usually with a credit card.
**Action Item #2: You must download and acknowledge the appraisal as soon as you receive it via e-mail.
Loan File to Underwriting
Loan underwriting is the process of a lender determining if a borrower’s loan application is an acceptable risk for the investor.
In this step, your loan processor will send all of the documentation you had provided early in the process, along with the appraisal (if it’s been received back by then) on to the underwriting department.
Underwriters assess the borrower’s ability to repay the loan based on an analysis of their credit, capacity, and collateral. The underwriter working on your loan reviews your loan application and uses supporting documentation to essentially figure out whether or not you can afford a mortgage.
The underwriting process can take anywhere from a few days to weeks. Your loan type, financial situation, missing paperwork, and issues with property surveys or title insurance are all things that can affect how long it takes an underwriter to approve your mortgage.
Loan Lock – Change of Circumstance
If the interest rate is not locked when the loan estimate is provided (which is most common), your lender will reach out to you to discuss multiple rate options that will best fit your requirements. At that time you can actually consider lowering your interest rate by paying “points” – you can find out more on that here.
Your lender will then issue a revised loan estimate once that rate is locked. The revised loan estimate should be updated to reflect the revised interest rate, as well as any changes to points disclosed under origination fees, lender credits, and any other interest rate dependent charges and terms.
*Action Item: The borrower must electronically sign this document to confirm receipt.
Loan File back from Underwriting – Conditional Approval
In a lending context, a conditional approval is when the mortgage underwriter is mostly satisfied with the loan application file, but there are still one or more issues that need to be resolved before the transaction can be completed. In mortgage lingo, these remaining issues or items are commonly referred to as “conditions” (hence the term conditional approval).
Conditional loan approval comes after the underwriter goes through the loan application, credit, and analyzes the income and assets.
If the underwriter determines that the loan looks good in most respects — but there are a couple of things that need to be resolved — it’s referred to as a conditional mortgage approval.
*Action Item: Your loan processor originator will let you know what other pieces of documentation the underwriter is requesting for a final approval. Please provide those documents immediately to ensure an on-time closing.
The closing disclosure is a five-page form your lender provides to you at least three business days before your closing. It is very similar to the Loan Estimate and it outlines the final terms and costs of your mortgage. It’s one of the most important pieces of paperwork you’ll receive, so check it over carefully. Below is a sample Closing Disclosure:
While the Loan Estimate outlined the approximate fees you would pay for your mortgage, the Closing Disclosure uses the real numbers, which is why you need to read the closing disclosure carefully and ask about anything you don’t understand.
*Action Item: It is imperative that the borrower downloads and acknowledges receipt of the Closing Disclosure immediately, as this will lead to closing delays if not done right away.
Final Walk Through
The primary purpose of a final walk-through is to make certain that the property is in the condition in which you agreed to buy it. Make sure that all agreed-upon repairs, if any, were made, and nothing has gone wrong with the home since you last looked at it.
A final walk-through is generally performed anywhere from a few hours to a few days before settlement of the purchase transaction. Buyers are often pressed for time as the transaction closing date draws near, so they might be tempted to pass on this opportunity. But many issues can come up, and it’s never a good idea to skip the final walk-through.
This walk-through isn’t a second home inspection, nor is it a time to begin new negotiations with the seller to do repairs.
Monies to Escrow
There are two main ways to transfer funds at the closing of a real estate transaction – certified check or wire transfer.
A certified check is different from what you’ll find in your checkbook. This “check” is certified by an officer at the bank, first to be sure the funds are available at the time of writing, and second, to ensure the signature is legitimate. A cashier’s check takes it one step further by placing the funds into an escrow account until deposited or rescinded. This makes a cashier’s check about as close to cash as you can get.
A wire transfer is when funds are directly transferred from one party to another, perhaps from bank to bank or from bank to escrow company to bank. A wire transfer is as immediate as it gets, and there’s no check involved.
*Action Item: If you choose to utilize a wire transfer, contact your closing agent via telephone and confirm that the recipient account number and related information are correct to avoid wire fraud.
Signing and Closing
Mortgage closing is the last step in the exciting process of buying a home.
This essentially involves the final implementation of all agreements made between the buyer, the seller and your lender, for the purchase and financing of your new home.
Signing the closing documents legally transfers ownership from the seller, and you become the new owner of the property.
This takes place either at the escrow company’s office or at a place of your choosing, if utilizing a mobile notary to gather your signatures.
After signing documents and paying closing costs, you get ownership of the property. The seller must publicly transfer the property to you.
The closing attorney or title agent will then record the deed….and then you receive your keys and officially become the owner of the home.
Generally, a homeowner’s first mortgage payment is due the first day of the month following the 30-day period after the close. If you’re buying a home and you close on August 15, for example, your first payment would be due on October 1.
*Action Item: You will have received one or two “payment coupons” in your closing package for your first and second payment. These need to be made via US mail, in most cases.
Secondly, your loan will most likely be transferred to a mortgage servicer. This is the company that handles the day-to-day administrative tasks of your loan, including receiving payments, sending monthly statements and managing escrow accounts. This is different from your mortgage lender, which is the financial institution that gives you a home loan.
*Action Item: Keep your eyes open for a letter from your new servicer between 20 and 30 days from the close of your loan, informing you of the new payment address, including the ability to set up automatic payments.
During the transfer, you have a 60-day grace period during which you cannot be charged a late fee if you mistakenly send a mortgage payment to your old servicer.
This list isn’t exhaustive, but it’s a pretty good indicator of what will happen over the course of a real estate transaction. If you have any questions along the way, don’ hesitate to contact me, as it would be my pleasure to help!