Steps in the Loan Process

Step 1: Start Planning

The planning process begins when you first have the idea that you want to purchase or refinance a property. It is important to find a loan consultant with whom you are comfortable, who you feel is looking out for your best interests and who will take into account your overall financial picture in working with you. Make sure it is someone who is well-qualified, who has competitive rates and programs and good company support. It should be a person with whom you can communicate easily. Good communication during the loan process is important, so that you are educated and informed throughout the transaction.

If you are purchasing real estate, you will also want to select a Realtor just as carefully.

In addition to your loan consultant and Realtor, other professionals who can contribute to the planning process are your CPA, financial planner, insurance agent, or an attorney who specializes in trusts, taxes, or family law.

One of the items you will want to determine in discussions with these professionals is how you intend to hold title to your property. Some ways to hold title are as sole owner, tenants in common, joint tenants, or in the name of a trust. How you hold title may have legal or tax ramifications, so it is important that you understand which way is the best for you.

The more information you have at the beginning of the process, the better able you will be to make a good decision regarding your real estate finance. Your loan consultant will then help you select the best loan product for your transaction.

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Step 2: The Application

A complete loan application gets the process off to a good start. Your loan consultant will work with you to fill out the application. The application summarizes your personal identification, housing history, employment, income, assets and debts.

The following is a checklist of the documentation that is needed for a “Full Doc”, or fully documented loan application. Some loan programs will not require full documentation. (See the section on Documentation Types for clarification)

	Personal Identification: Your full name, your social security number, date of birth and a copy of your driver’s license.
	Residence history:
	• Past 24 months of residence with complete addresses   • Length of time you have lived at each residence   • Name of landlord, phone number and address (if renting)
	Employment History
	• Employers for the past two years with addresses and phone numbers   • W-2’s for the past two years   • Pay stubs covering the most recent 30 days   • If self-employed, your most recent 2 years of tax returns   • For any gaps in employment, a letter of explanation will be needed
	Assets
	• Copies of the most recent 2 months or 1 quarterly statement for all bank accounts, investment or retirement accounts, pensions, etc.
	Debts: Your lender will request your permission in writing to run your credit report. This will complete the liabilities section of the application.
	Current Real Estate
	• Property addresses   • Estimated market value   • Outstanding loan balances—copy of most recent loan statement   • Amount of monthly loan payments, taxes and insurance   • Amount of rental income, if any
	If this is a purchase loan, the following is needed:
	• When you are in contract, a copy of your Purchase Contract   • If you are selling your current residence, a copy of your Sales contract will be needed, and a certified copy of your closing statement will be needed before your new loan will fund.

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Step 3: Pre-Qualification

After reviewing your credit and overall financial situation, you may be able to obtain a “prequalification” from your lender. This is a general idea of what you will qualify for, based on the information that has been obtained so far. It is not an approval that has gone through underwriting, but it will help you move forward in your plans. If you are purchasing a property, you can start looking in your identified price range.

Your loan officer will also give you a Good Faith Estimate, which is an estimate of the loan payments, including taxes and insurance, and an estimate of all closing costs that will be related to your loan. It is important that you know and understand these expenses so you will be prepared for them at closing time.

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Step 4: Shopping for a Home or Investment Property

With work underway on your financing, and an idea of what loan amount you will qualify for, you can start shopping for your property. When you are ready to make an offer, your loan consultant can provide a letter, which verifies that you are pre-qualified for a loan. This letter will go along with your purchase contract to make it a stronger offer.

Step 5: Loan Submission

Once you have completed the loan application, your lender will order the documentation to support the type of loan you have applied for. If this is a fully documented loan, the lender will request verification of employment and mortgage or landlord ratings. If this is a refinance, the lender will request an appraisal, and will open escrow and request a title report. If this is a purchase loan, those items will be requested when you are in contract. The loan application with all the required documentation will be submitted for approval.

Step 6: Loan Approval

Once all the documentation has been received and reviewed by underwriting, you will be notified if you have loan approval. In the case of a purchase, it makes a big difference to a seller to know you have received underwriting approval regarding your ability to obtain financing.

Normally the approval comes with “conditions”. These are items that still have to be satisfied before the lender will draw the documents and fund the loan. Typically, the loan is conditioned upon a satisfactory appraisal and proof of insurance. It may be conditioned upon receipt of additional documentation or explanations about information on your application. Your loan consultant will go through the conditions and work with you to get the necessary items.

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Step 7: Drawing Documents

When all of the “Prior to Doc” conditions have been satisfied, your loan consultant will request that Loan Documents be drawn up by the lender and sent to your title company. Your escrow officer will make an appointment for you to sign the final loan documents. At sign-off, you will receive an estimated closing statement (HUD-1), which will tell you if additional funds are needed to close the loan. These funds can be wired to the title company or paid by cashier’s check.

Step 8: Funding

Once all parties have signed the loan documents, they are returned to the lender who reviews the package. If all the forms have been properly signed, and all loan conditions have been met, then the loan is funded.

Step 9: Recording

When funds are received from the lender, the title company will record the legal documents necessary to record the deed of trust, which will show the loan on the property. If this is a purchase, title will also be transferred to your name. The transaction is officially closed.