Understand the Home Buying Process
Having a basic understanding of the lending process will help you be aware of why so many elements are required and needed to process your loan.
The lending process begins when someone like you decides to get a loan for the purchase of a home and applies for a mortgage. The Mortgage Banker, or loan originator, will initiate the completion of the loan application from the applicant – this can take place in a variety of ways: over the phone, through an online loan application, or in person. The Mortgage Banker will help you gather all the information and documentation you will need for the loan to be processed.
During processing, all of the information gathered for the loan application is put into one file representing both the borrower (you) and the property being financed. The Loan Processor uses the information within this file to obtain more information that will be added to the file. The Loan Processor will order credit reports, a property appraisal, and other documentation dictated by the application or the Underwriter. The Mortgage Banker and the Loan Processor use their expertise to ensure the file is complete. Once the file is complete and reviewed for accuracy, it is passed to the Underwriter.
During the underwriting phase, the Underwriter reviews the file to make sure it meets investor guidelines and that it is of good investment quality – it is during this stage that the decision to lend money to the borrower is made. Four main areas will be evaluated when the file is reviewed by the Underwriter:
- Credit. Your willingness to repay the loan based on your credit score.
- Capacity. Your ability to repay the loan based on your income stability.
- Capital. Your investment based on savings and other sources.
- Collateral. If the home’s value provides adequate security for the loan.
After evaluating all of these areas, the Underwriter will determine if the borrower is approved for the loan or not. In some cases, the loan is neither denied nor approved, but instead, the Underwriter will request additional information in order to make a later decision.