The Home Loan in 5 Stages

Residential Mortgage Loan Application (1003)

For over 8 years, I worked on the mortgage loan side of the real estate business and wanted to share an overview of the process for people who are new to it. This is just a simple outline of what to expect. You can find this information and a goldmine of more in depth on the Consumer Financial Protection Bureau (CFPB) website: www.consumerfinance.gov.

I’ve also included some CFPB guide booklets that provide great detail and some sample documents; these are all downloadable. Just click on the gold buttons I’ve added below.

While there are an incredible amount of parts and pieces to the process and work that’s involved between many people and entities behind the scenes, here is what you can expect with your lender in 5 main stages:

1.      Loan Application: you would start by speaking to a Loan Officer or Mortgage Loan Officer (LO or MLO) who would collect some information from you and submit it to the mortgage lender by way of a Uniform Residential Loan Application called a 1003 (ten-o-3).

There are 6 key pieces of information that will be collected on your application taken by the LO and once they acquire all 6, the clock starts ticking. Per TILA-RESPA Integrated Disclosure (TRID) rules, the lender then has 3 days in which to provide you a Loan Estimate. These 6 pieces of information are the following:

·         Your name

·         Income

·         Social Security Number

·         The address of the property you’re purchasing

·         The value of the property

·         The loan amount you’re requesting

In addition, they’ll require your place of employment, current address, and various other pieces of information. They’ll also have you sign a consent form to pull your credit and to allow your documents to be provided to you electronically for signatures. Your credit report will be pulled and reviewed at this time.

LO’s are adept in the many different products offered by different lenders and will recommend the best option, at the best rate, for your specific circumstances.

 2.      Initial Disclosures: within 3 days, you’ll receive a set of Initial Disclosures to sign that will provide you, among many other items, a Loan Estimate (LE) that will outline everything you should expect cost-wise: the estimated interest rate, your monthly payment, and total closing costs for the loan. Closing costs typically include, among various others, the following:

·         Loan Origination charge

·         Underwriting fee

·         Application and Processing fees

·         Appraisal fee (2 appraisals above certain loan amounts - varies per lender)

·         Credit Report fees

·         Flood Certification fee

·         Condo Certification and Questionnaire fees (if applicable)

·         Title fees (costs vary per title company)

·         Taxes and Recording fees (can differ per state)

·         Homeowners Insurance costs

·         Prepaids (taxes and insurance)

·         Escrow fees (taxes and insurance +flood insurance if in a flood zone)

·         HOA fees (can be several – varies per homeowner’s association)

·         Sometimes Lender or Seller Credits to offset

The LE will also show if the loan has special features that you need to be aware of like prepayment penalties or negative amortization.

Keep in mind that these are close estimates at this stage in the process.

The disclosures will be sent to you via DocuSign or such electronic system so that you and any other borrowers involved in the loan can sign quickly and easily; these systems are extremely secure. They can also be mailed to you or signed in person, but this does prolong your loan being moved into processing, so keep that in mind. Once you fully sign your initial disclosures, your loan will be moved forward.

Just a note that signing these disclosures does not lock you into the loan, it simply gives your “permission” for the lender to proceed with the process. There is a form in the package called an Intent to Proceed (ITP) that allows the lender to move forward. You can still cancel at any time before the loan closes.

These initial disclosures are like a rough draft in a sense as there will be updates, revisions, and additional information as you move through the process. You’ll receive a closing package in the end that will be complete and finalized.

Meanwhile, any changes or revisions made to the loan costs or other loan details will be documented through a Change of Circumstance form (COC) that explains the changes and will be attached to a revised LE; these will be sent to you for your review and signature in the following stages of the process.

3.      Loan Processing: at this stage, the loan processor will reach out to you for all the information and documentation that they will need to process and prepare your loan for underwriting. This will include, among other items:

·         Copies of your driver licenses

·         30 days of paystubs

·         3 months of any bank, investment, and retirement account statements

·         2 most recent years of your federal tax returns

·         2 most recent years of W2’s (if applicable)

·         K1’s and P&L statements (if you own any portion of a business)

·         Mortgage statements (for properties that you own)  

·         HOA bills (for any properties that you own)

·          Various other Documents

Various forms will be sent to you for signatures, and others to gather information such as a Credit Inquiry Letter asking you to explain any credit inquiries that were found on your credit report and whether new credit was opened. And verifications will also be done such as employment verifications.

The processor will carefully analyze what you’ve provided and may request more items if necessary. Their goal is to get you approved for the loan. They’ll work to clear any underwriting conditions and make sure everything is approved per the lending guidelines. Once they receive a Clear to Close (CTC) from underwriting, they will move your loan into the closing stage. Depending on the type of loan and your situation, the processing / underwriting stage typically averages around 30 days, sometimes more and sometimes less.

 4.      Closing Documents: once moved into the closing stage, the entire loan will be gone over meticulously. Every detail and every document will be scrutinized and carefully balanced with the title company. A Closing Disclosure (CD) will be provided to you that will contain every loan and financial detail; it will show the loan terms, projected payments, loan costs… everything that was on the LE, plus home warranty cost, and Realtor commissions. It will also show the sellers existing mortgage payoffs, your deposit, and any added credits. However, these will now all be the precise amounts that will be paid (no longer estimates). It will show who pays them; some will be paid by you, some by the seller, and some by others. This will be sent to you electronically for signatures. It’s important that you sign this right away as it’s extremely time sensitive per TRID rules. Once you sign your CD, your Final Loan Documents (docs) will be generated and sent to the title company where they will prepare them for the Signing / Closing date that they have scheduled with you. These Final Loan Documents contain, among many other items, the following:

·         The final CD

·         The Note

·         The Mortgage / Security Instrument / Deed of Trust

·         Any Riders

·         The Final 1003

This signing cannot occur for 3 days after the CD was signed. It’s a 3-day review period that must pass, after which, loan docs must be signed on the scheduled closing date in order for funds to be disbursed.

 5.      Funding: after the final loan documents have been fully signed by all parties and notarized, the title company will send them (electronically) to the lender for review. Once reviewed and confirmed, the lender will authorize / wire the funds to the title company. The funds will then be released, and the deed recorded by the title company. This all happens on the same day, typically within 2 or 3 hours, after which you will be given the documents and the keys to your new home.