Understanding the Basics of the Mortgage Process
Posted by Eric Skates on
The mortgage process can feel overwhelming thanks to the many moving parts involved, although mastering the basics and a maintaining patience will have you well on your way to a successful mortgage. From the underwriting portion of the transaction all the way through the post-closing period, here's a look at the essentials of what you need to know to get you to the finish line.
What is underwriting?
Underwriting is the process in which your lender evaluates the suitability of the requested loan and guarantees that all the numbers line up for the transaction. Typically starting with prequalification, prospective home buyers have their income and financial records inspected by the lender, which will help determine the type of mortgage that will fit the buyers' financial outlook. The earliest phase of the lending process forms a foundation for buyers to get started looking seriously at properties while lenders begin verifying the buyer's ability to repay the loan.
Once the initial financial inspection looks good, a lender will send out a pre-approval letter that will showcase your seriousness as a buyer to the seller. It's important to note, at this point, that pre-approval does not mean you officially have a loan; an underwriter must first verify your finances and ensure the house you're circling is worth what you're offering to pay for it. This is the crucial part of the underwriting process.
In between pre-approval and final approval, the critical appraisal process is the way the underwriter guarantees the current value of the house matches the offer. An independent appraiser will scrutinize all of the nuts and bolts of the house, from the basic structure and any signs of damage to the context of the surrounding neighborhood. This also can give the buyer some peace of mind about the value of the house and makes sure everyone in the transaction is on the same page. After the appraisal confirms the value of the house and the validity of the title, the buyer fulfills any last-second conditions and the underwriting process can wrap up.
What is closing?
Once you make it through underwriting, closing is when final walkthroughs are made, critical documents are signed, and the house is officially turned over to the buyer – usually with the assistance of an escrow officer or a real estate lawyer. But before you jump right to the celebration, there are a few easy steps that a buyer can do to help ease the process along and make sure there are no snags to take care of. For example, if there were any repairs that were supposed to be completed, a buyer might want to schedule a pre-closing walkthrough to make sure everything was done as anticipated. This will give a buyer a final chance to insist on a repair or, if necessary, possibly even delay the closing date until both sides have lived up to the agreed-upon terms.
Another important aspect of closing is to personally inspect the closing disclosure, which is tedious by design but also extremely informative. The breakdown of closing costs and the terms of the loan on the closing disclosure will provide a clear overview of the mortgage process just in advance of the closing date. Before signing the closing disclosure, you should feel comfortable with the final closing costs and then be ready to take the leap towards officially owning your new home. After a brief waiting period of a few days following the signing of the closing disclosure, you'll be ready to sign the mortgage loan documents and pop the champagne as you get to one of the turning points of the process.
What is post-closing?
Post-closing of a mortgage might be best seen as an audit of the entire process, which is specifically designed for the lender to ensure that everything – from the loan application through closing – went how it was supposed to go. The underwriting process in particular is scrutinized, with all relevant documents combed to make sure protocol was followed by the underwriter. Ultimately, the post-closing stage will include the lender verifying that all rules and regulations were complied with.
Meanwhile, a buyer should expect to receive a copy of the original deed, which should be immediately put in a safe place – but not one so safe that you'll never find it again. Ultimately, the post-closing stage is meant to act as oversight for the entire mortgage process, making sure that everyone has copies of the correct paperwork and that all mortgage laws are satisfied. While the hard part for a buyer is over by post-closing, it's also a good opportunity for a new homeowner to organize all of the paperwork that went into obtaining a mortgage. For your personal files, it can also be helpful to include any personal notes for when you do finally dig through your box of mortgage files years or even decades later. The better organized you are in the post-closing period, the better position you'll be in if you have to eventually sell your home or apply for another mortgage down the road.
No matter how time-consuming and rigorous the mortgage process can be, it's all designed to ensure the deal is as fair to all parties as possible, including for anxious new homeowners who can't wait to move in. Whether you're a first-time home buyer, a real estate pro, or a homeowner looking to refinance a current mortgage, you can contact our professionals to help guide you every step of the way.