For a vast majority of property owners, the home loan is the largest extension of credit they will ever pay down. With hundreds of thousands of dollars -- or more -- at stake, it makes sense that lenders take great care to qualify their borrowers before issuing such large disbursements of funds. While applicants can feel uneasy about a bank looking so closely at their financial lives, they can nonetheless take comfort from the fact that the lender's thoroughness enables it to make loans in the first place. A working knowledge of the approval process can lower applicant anxiety considerably.
Application: Because You Say So
When a mortgage applicant sits down with a loan officer to formally request a home loan, the information conveyed is received in good faith, i.e. the lender's representative gives the prospective borrower the benefit of the doubt as far as representations go regarding income, employment, assets and home value. Other than the credit report, most of the application is based on the applicant's statements. Once the application is complete, the lender issues estimation disclosures informing the applicant what tthe loan might cost -- interest, fees, third-party charges, tax escrows etc. Trust, therefore, gets you in the door.
Processing: Because It's Their Money
Once the loan is in the lender's hopper, however, something more than the loan candidate's word is necessary to forward the application to an underwriter. Concrete verifications of the applicant's statements need to be collected and accepted. This documentation includes a residential appraisal; proof of employment; pay stubs or income confirmation; bank and investment statements; insurance declarations; copies of photo IDs; and condominium information (if applicable). Assembling and confirming the validity of these documents is the job of a loan processor. The swiftness with which the information is received by the processor determines how quickly the application goes on to underwriting.
Underwriting: Because It Has to Make Sense
Underwriting sits at the heart of mortgage lending. With the borrower's assertions duly sustained by documentary proof, the underwriter is now free to crunch the numbers. When circumstances favor he borrower -- high income, low debt, abundant cash reserves and modest loan amount compared to property value, e,g, -- the application is run through an automated system for evaluation and approval. Sometimes, though, the numbers are tighter in terms of consumer debt versus income; loan amount versus appraised value; level of assets and the like. In such cases, underwriters must sharpen their pencils and manually examine the pertinent ratios and thresholds to see if the loan is a safe bet for the bank and its investors.
Closing: Because It Must Be Legal
Applicants are elated when they get a lender loan commitment in hand -- until they look at the conditions to close. To quote a famous movie line, "Just when I thought I was out, they pull me back in!" The job of a closing department is not to evaluate credit worthiness. The underwriter already did that. When a loan is approved it goes to closing to 1) clear any conditions to the approval set by the underwriter; 2) address any title conditions that prevent free and clear ownership of the subject property; and 3) coordinate a closing with attorneys and settlement agents. This last role includes approval of any and all payments to vendors and lienholders. It also includes the wiring of funds to the settlement agent. Closings can be delayed because of unpaid liens on the property, insurance inadequate to home value or when final numbers veer too far afield from the initial disclosures.
