Once the lender’s underwriting department has provided final approval, the lender will begin pre-closing preparations. This normally includes the following tasks:
- Obtaining certificate of adequate insurance coverage.
- Scheduling the closing.
- Ordering the closing documents.
- Coordinating the closing with all parties involved.
The “Closings and Transactions” article goes into further detail about the closing process and requirements. After the closing, the closing agent will normally be responsible for recording the mortgage deed and title changes. The lender will then collect the loan documents from the title company.
Only underwriters can issue a loan approval. Many lenders provide a preliminary approval after a preliminary underwriting review of the applicant data supplied to date.
The complete approval will come after the applicant’s data have been documented and verified. This verification and review stage will analyze the borrowers data in several areas:
1. Income and employment. The “Analyzing Employment and Income” article reviews the typical income and employment requirement.
2. Asset. The “Analyzing Assets”article reviews the typical asset requirement.
3. Liabilities. The “Analyzing Liabilities” article reviews the typical lender requirement for borrower liabilities.
4. Property. The “Analyzing Property Types” article reviews the typical property qualification requirement.
5. Credit history. The “Analyzing Credit Reports” article reviews the typical credit requirements.
6. Appraisal value. The “Analyzing Appraisal Reports” article reviews the typical appraisal requirements.
7. Property title. The “Analyzing the Title Report” article reviews the typical title requirements.
Once the lender has compiled the necessary documents and verifications, the lender will underwrite the completed package to determine its credit-worthiness. Sometimes, the underwriter may request additional information or documents as conditions to its approval. These conditions must be satisfied before the underwriter provides a full approval and allows the loan to close. After reviewing the completed package, the underwriter will issue one of three decisions:
- Suspension. If the lender’s underwriter still requires important documents or information to make an accurate decision, the underwriter will suspend the loan application until it receives those additional documents. This suspension is not a rejection, though it may be on the verge of rejection. Instead, it is an indication that the lender requires more documents.
- Approval. If the applicant is qualified and the application is relatively complete, the underwriter will issue an approval. Often, the lender’s approval will have certain conditions that must be satisfied prior to the closing. These conditions may include explanation letters, additional pay stubs or supporting documents. The application is basically credit-worthy; the required items are meant to confirm the basic strength of the applicant.
- Rejection. If the borrower’s application is not qualified, the lender will reject the loan. If that happens, the borrower will have to try a different program or lender.
The loan processor must verify the applicant’s qualification data, while simultaneously collecting the verification documents. Most verifications are written forms that are mailed or faxed to employers, creditors, landlords, banks, investment accounts and income sources.
For these verifications, the lender will send verification forms to the appropriate parties (borrower’s employer, bank, etc.). However, the applicant can often save time by providing extra bank statements and pay stubs, as well as canceled checks for rent payments and copies of previous appraisals. However, part of the verification process includes third-party reports, such as credit, appraisal and title insurance reports. The processor will request these reports from the appropriate parties. Depending on the applicant’s situation, the verification stage can last as little as two days to as long as three months. However, the typical verification period does last about two to three weeks. The report that requires the longest period of time is usually the appraisal, which usually takes 10 to 14 days to complete. Completed verification forms normally return to the processor within five days, as they are standard procedure for many institutions.
However, some verification forms—such as of mortgage debts, landlord confirmation and pension accounts—may take longer. Again, for faster processing, the applicant should prepare and provide necessary documents at the time of application.
The processor will examine the application packet and collect any documents still required for processing. If there are any documents still missing from the file, the lender will contact the borrower promptly, as these documents must be collected before the loan can be approved and closed. Depending on the applicant’s situation and data, additional documents may be required, such as explanation of credit problems, copies of canceled checks or additional bank statements.
To ensure speedy processing, the applicant should provide all necessary documents at the time of application. For a list of documents required, please consult the “Borrower Documents Required” article. Practically all conventional conforming loan programs share the same core document requirements:
l Pay stubs for the past two pay period. l Bank statements for the previous two months.
l Tax returns and W-2s for the past two years.
Some programs are called no income verification, no asset verification and no documentation loans. Unfortunately, many homebuyers and investors misinterpret the true program requirements. Contrary to what many people mistakenly believe, these programs will still require a good deal of borrower documents. They just don’t require as much.
The no income verification program will not require income documentation, but lenders will still require documentation of the borrower’s employment. The no asset verification program will not require documentation of the “source” of the asset funds that the borrower must have to qualify for the loan. However, the no asset verfication program will still require documentation of the current funds.
The no documentation loan is a combination of the no income verification and no asset verification programs. The “no doc” will require income and asset-source documentation, but it will still require employment, current asset and other documentation.