Pre-approval

Before finding a home to buy, a pre-approval is needed to determine if a borrower is eligible.

Pre-approval is a pre-screening process where the lender looks at the borrower’s financial details to determine how much they qualify for. This includes income, assets, and debts owed.

If approved, a loan qualification range is given to help with looking for homes within that price-range.

House hunting and purchase agreement

Once pre-approved, the borrower can shop for a home to buy.

When a desirable home is found, the borrower makes an offer to the seller.

If accepted, a purchase agreement is created to document the proposed price and any other terms agreed upon.

Loan application

Once the purchase agreement is signed, a mortgage loan application needs to be completed.

The borrower provides details about the property, the type of loan they’re requesting, and additional information.

Loan processing

While the application is being processed, the loan processor will collect a variety of documents from the borrower.

The loan processor asks for bank statements, tax records, employment letters, a copy of the purchase agreement, assets, and more.

They’ll request a home appraisal to determine the property’s value.

A copy of the borrower's consumer credit report will be requested as well.

Underwriting

This is the department that examines the documents prepared by the loan processor. Their primary responsibility is to evaluate the level of risk connected with the loan.

Documents are checked to verify they comply with lending requirements and guidelines.

The borrower’s consumer credit report is reviewed.

Debt-to-income ratio, assets, and other elements of their financial picture are also looked at.

Loan approval and closing

If the loan is approved, it is "clear to close". This means the seller and the borrower can complete the sale of the home.

All relevant documents are sent to the title company that's chosen to handle the sale.

The borrower and the seller(s) must review and sign all the pertinent documents before "closing" so the funds can be disbursed.

Loan servicing

A mortgage servicer (usually the lender) manages the mortgage for the life of the loan and the borrower becomes the homeowner.

Services include, but aren't limited to, accepting mortgage payments, calculating interest, managing escrow accounts, and addressing account issues.

Escrow accounts

The mortgage servicer may collect property taxes and homeowner’s insurance premiums on the borrower’s behalf. This would be in addition to the principal and interest payments each month.

Depending on what the kind mortgage it is, the borrower may have to have an escrow account. The escrow account will store funds to cover annual or semi-annual taxes and insurance payments.

Some lenders don't require homeowners to have an escrow account. Instead, the borrower pays the insurance premiums directly to the insurance company, and property taxes directly to the tax assessor.