The 6 Major Steps in Mortgage Loan Processing
The mortgage loan process may seem far from simple. There’s a lot that happens between the first time you meet with a mortgage consultant to your loan being funded. But we’ll walk you through it with full transparency.
We’ll explain every step of home loan processing, including a breakdown of all associated costs and fees. You’ll know exactly what you need to submit and when, and exactly where your loan is throughout processing.
If you ever feel you’re lost, just contact us! We are dedicated to making the mortgage process as smooth, friendly, and quick as possible.
Here are the six major milestones you'll reach during loan processing and what’s happening at each stage of the process.
Mortgage loan process
1. Mortgage application is submitted to processing
The Mortgage Consultant collects and verifies all documents necessary to prepare the loan file for underwriting. These documents provide us with everything that we need to know about you (the borrower), and the property you are financing.
During processing, the Mortgage Consultant:
- Begins verifying assets, income and employment
- Orders a home appraisal to determine the value of the property (if/when needed)
- Runs various compliance and eligibility checks to ensure the process advances quickly and smoothly
Common documentation requested by underwriting includes:
- Evidence of Earnest Money
- Asset Verification
- Borrower Letter of Explanation (LOX)
- Gift Letter
- Copy of Note
- Source Large Deposits
- Verification of Employment (VOE)
- Fully Executed Sales Contract
2. Loan is submitted to underwriting
At this step, the Underwriter starts the loan underwriting process. They review every document to determine whether you qualify for a mortgage. The Loan Officer and Mortgage Consultant will work to submit a complete file to the Underwriter. However, an Underwriter may still have questions or ask for more documents for a final approval.
What is underwriting?
Underwriting is the process financial institutions follow to determine the amount of risk that a prospective customer presents. Underwriters assess borrowers’ financials, debt obligations and employment record. They also use the property value to decide how much risk lenders take on by extending a home loan.
What do underwriters do?
Mortgage underwriters review financial documents to make sure that two conditions are met: that the borrower can afford the loan, and that the property is worth the amount of the loan.
Lenders want to be sure that you can repay your home loan. To that end, underwriters analyze your finances and search for any red flags. They’ll also verify the information provided in your loan application — employment status, income level, recurring debt, etc.
What do underwriters look at?
In addition to the loan file submitted by processing, the Underwriter examines:
- The completed appraisal report
- Credit report
- Pay stubs
- W-2 forms
- Bank statements
- Property tax statements
- Mortgage statements
- Homeowners insurance quote
- Existing debt
- Documentation of assets like stocks, bonds, securities and real estate holdings
How long does underwriting take?
Underwriters tend to be very thorough and need time to review prospective borrowers' information to assess the risk they pose. As such, don’t be surprised if it takes several weeks to receive initial underwriting approval on your mortgage. Exact timelines will depend on the documents you provide, your financial circumstances and the underwriting team’s workload. It's best to try to anticipate documentation needs and respond to requests as quickly as possible.
What happens after initial underwriting approval?
If your loan application presents an acceptable level of risk for the underwriter, they will grant you conditional loan approval. But you’re not in the clear just yet.
3. Loan is conditionally approved
If your loan application presents an acceptable level of risk for the underwriting team, then they will grant you conditional loan approval. But you’re not in the clear just yet.
What does conditionally approved mean?
Conditionally approved meaning
A conditional loan approval means that the underwriter has approved the loan in principle, but still needs a few more items before giving final approval. At this stage in the mortgage process, your loan status still depends on meeting those final conditions.
What conditions do you need to meet?
In most cases, mortgage teams will want to see additional documents to verify finances. These documents often overlap with the materials requested leading up to initial underwriting approval:
- Bank statements
- Tax forms
- Employment records
- Home appraisal report
- Pay stubs
- Outstanding loan or credit balances
- Homeowners insurance quote
Conditionally approved vs. other types of mortgage approval
Your home loan will likely receive various forms of approval throughout the mortgage process. Conditional approval is just one of several status changes you’ll probably see. How does it compare with other types of loan approval? Here’s where each one sits within the mortgage timeline:
- Prequalified: The lender has completed an initial evaluation of your finances, estimated what you can afford and thinks you’re likely eligible for your requested loan amount. It has not, however, verified your financial situation.
- Preapproved: The lender conducts a more thorough review of your finances, credit history and employment status. Often, this review is done with an Automated Underwriting System (AUS) and a more hands-on assessment is still required.
- Conditional approval: Underwriters have combed through your financial records and verified most, if not all, of the information provided in your loan application. They’ve also looked over the home appraisal to confirm the property’s value as collateral on the loan.
- Clear to close: The underwriting team has completely verified your eligibility qualifications and given your loan final approval. You’re now ready to close on your loan.
Can your loan be denied after conditional approval?
Conditional approval is just that: conditional. There's always the chance your loan could be rejected until it's funded and you've closed on your mortgage. The most common reasons your loan agreement might fall through after receiving conditional approval include:
- Loss of employment or income
- Drop in property value
- Issues with the home appraisal
- Taking on additional debt
- Title to the property is not clear
- Inability to document income or employment
These types of issues aren’t exactly common, but they could come up. The best way to avoid any problems with a loan application is not to take on extra debt, like a new car loan, and to keep your employment steady. Keep a close eye on your income streams to make sure everything is in order.
How long does it take to get final approval after conditional approval?
The good news is that once your loan has been conditionally approved, you're basically in the home stretch. Your lender will likely need another 1-2 weeks to finalize your home loan and set your closing date.
What happens after underwriting is approved and conditions are met?
The Loan Coordinator will get in touch with you to go over the conditional approval mortgage and any extra required items. They will also go through any additional paperwork that needs to be completed to finalize the loan. This documentation can include:
- The completed appraisal (or updates to the existing report)
- Additional verifications
- Standard in-house items required for closing (purchase agreement, deed, mortgage note, etc.)
Steps After Conditional Approval
- Clear to Close
- Closing
- Funding
Once all conditions have been met, the Loan Coordinator will send the file back to the Underwriter for a final review and approval.
4. Loan is Clear to Close
What is clear to close?
"Clear to Close" means the Underwriter has signed-off on all documents and issued a final approval. You qualify for a mortgage and your mortgage team is moving forward with your home loan.
Your lender will send you a clear to close letter and a copy of the Closing Disclosure (CD) at this stage of the process. The CD is a document that outlines the terms of the loan, including all closing costs and fees. You won’t receive the Closing Disclosure until you’ve been cleared to close.
The lender will review your CD to make sure all costs and contingencies are accounted for before you close on the deal.
Clear to close timeline
How many days before closing do you receive mortgage approval? Clear to close timelines vary by lender and even underwriting team. There are also unique conditions that could extend the clear to close timeline. Unusual aspects on a loan application or spikes in mortgage team workloads can cause the process to take longer.
How long does clear to close take?
We understand how frustrating it can be to wait for a home to close, so we do everything we can to speed up the process. Our goal is to have your loan application cleared to close in as little as 10 days.*
How long from clear to close is closing?
After your loan is approved, the mortgage team will have three days to finalize all of your closing documents. You should be able to sign the deed for your new home 72 hours after receiving your CD.
5. Mortgage Loan Closing
Closing processes vary slightly depending on the type of transaction. Local, state and municipal laws also impact closing.
The type of transaction — purchase or refinance — determines who can provide you with accurate final numbers.
- Purchase: To get an estimate of your closing costs, speak to your mortgage professional. They will need to get in touch with your local title company or real estate attorney for a final figure.
- Refinance: In most states, you won't be required to use an attorney to close. In that case, you should speak with your Mortgage Professional for the bottom-line.
What to bring to the closing:
- Photo identification
- Personal check or bank check from an approved account to cover the closing costs and down payment (unless the money was wired). NOTE: Your mortgage team will advise the best way to transfer funds for your closing.
Whether purchasing or refinancing, prepare to sign a lot of documents!
- Purchase: While the process varies by state, typically a professional explains every document and notes where to sign. The lender’s wire may need to clear before you're handed the keys and provided with copies of the documents.
- Refinance: Depending on local laws, an agent from the title company will explain each document to be signed. If refinancing a primary residence, the loan will fund once the 3-day right of rescission has expired. This occurs on the fourth day. Once the rescission period has expired, the loan can no longer be cancelled. If refinancing an investment property or second home, the loan will fund on the same day.
6. Loan has been funded
The final step on the loan process is now complete: Your loan has been funded!
At this time, all documentation is complete and the funds for the loan have been disbursed to the seller (purchase) or to the payoff of the prior loan (refinance).
You should receive your first payment statement at the closing. This should be used to make the first and possibly second loan payment.
- If you did not receive the statement or cannot find it, you can reach out to your Mortgage Professional for a copy
You'll receive correspondence in the mail from the final servicer. This notice details where to make future payments and how to set up auto-pay if you want.
Do you have questions about the mortgage loan process?
Hopefully, you now better understand how the mortgage process works. Do you still have questions? Don’t hesitate to contact us. We’re here to help the process and to provide the kind of personal service you deserve.*
*Guaranteed Rate cannot guarantee that an applicant will be approved or that a closing can occur within a specific timeframe. All dates are estimates and will vary based on all involved parties level of participation at any stage of the loan process.
Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Restrictions may apply.