The 6 Major Steps in Mortgage Loan Processing
A lot happens from the first time you meet with a mortgage consultant until your loan is funded. But it doesn’t need to be daunting.
Here’s every step of home loan processing, including associated costs and fees.
If you ever feel you’re lost, just contact us! We are dedicated to making the mortgage process as smooth and quick as possible.
6 steps of mortgage loan processing
Step 1: Mortgage application is submitted for processing
After you apply, a mortgage consultant collects and verifies documents necessary to prepare the loan file for underwriting. These documents provide everything a lender needs to know about you and the property you want to finance.
During processing, the mortgage consultant begins verifying assets, income and employment, then orders a home appraisal to determine the value of the property if needed. Next, various compliance and eligibility checks ensure the process advances quickly and smoothly.
Common documentation requested
- Evidence of earnest money
- Asset verification
- Borrower Letter of Explanation (LOX)
- Gift letter
- Copy of note
- Verification of employment
- Fully executed sales contract
Step 2: Loan is submitted for underwriting
Underwriting is the process financial institutions follow to determine the amount of risk a borrower presents. Underwriters assess borrower financials, debt obligations and employment records. They also use the property value to decide how much risk lenders assume by extending a home loan.
The loan underwriting process reviews 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 have questions or ask for more documents.
What do underwriters look at?
In addition to the loan file submitted by processing, the underwriter examines a number of documents.
- Appraisal report
- Credit report
- Pay stubs
- W-2 forms
- Bank statements
- Property tax statements
- Mortgage statements
- Homeowners insurance quote
- Existing debt
- Documentation of assets such as stocks, bonds, securities and real estate holdings
How long does underwriting take?
Underwriters need time to review borrower information and assess the risk, so it could take several weeks to receive initial underwriting approval on your mortgage. Try to anticipate documentation needs and respond to requests as quickly as possible.
What happens after initial underwriting approval?
If the underwriter determines your loan application presents an acceptable level of risk for the lender, they will grant you conditional loan approval. But you’re not in the clear just yet.
3. Loan is conditionally approved
Conditional loan approval means the underwriter has approved the loan in principle but needs a few more items before final approval. At this stage in the mortgage process, your loan status depends on meeting 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
- 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 see. Here’s where each one occurs within the mortgage processing 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. This review often is done with an automated underwriting system (AUS), so a more hands-on assessment is still required.
Conditional approval
Underwriters have combed through your financial records and verified most if not all 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 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?
There's always the chance your loan could be rejected until it's funded and you've closed on your mortgage. These types of issues aren’t exactly common, but they could come up.
- 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
The best ways to avoid problems with a loan application are not to take on extra debt, such as a car loan, and to keep your employment steady.
How long does it take to get final approval after conditional approval?
Once your loan has been conditionally approved, you're in the home stretch. Your lender will likely need 1-2 more weeks to finalize your home loan and set your closing date.
What happens after underwriting is approved and conditions are met?
A mortgage consultant will go over the conditional approval and any outstanding items. They will also go through any additional paperwork that needs to be completed.
- The completed appraisal (or updates to the existing report)
- Additional verifications
- Standard in-house items required for closing, such as purchase agreement, deed and mortgage note
4. Loan 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.
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 your closing documents. You should be able to sign the deed for your new home 72 hours after receiving your closing disclosure.
5. Mortgage loan closing
Closing processes vary slightly depending on the type of transaction. State and local laws also can affect 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 that 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 points out 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 three-day right of rescission has expired on the fourth day. If refinancing an investment property or second home, the loan will fund on the same day.
6. Loan has been funded
All documentation is complete, and funds for the loan have been disbursed to the seller for a purchase or to pay off the prior loan for a refinance.
You should receive your first payment statement at closing. This should be used to make the first and possibly second loan payment.
You'll receive payment information 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.
Mortgage loan processing FAQs
How long does it take to get a mortgage?
The closing process for a mortgage typically takes 30 to 60 days. This timeline begins when the lender receives a completed application.
But you could get your documents signed off on in as little as one day and get an approval on a mortgage in 10 days.* If you’re ready to get started, you can apply for Rate’s Same Day Mortgage program now.
Is loan processing the same as underwriting?
Underwriting is just one step that’s part of loan processing. The loan underwriting process reviews every document to determine whether you qualify for a mortgage.
Underwriters assess borrower financials, debt obligations and employment records. They also use the property value to decide how much risk lenders assume by extending a home loan to you.
What do lenders look for when you apply for a loan?
A lender will examine your financial situation and determine if you can afford the home you’re interested in. Your credit score, debt-to-income ratio (DTI), employment history and assets will all help a lender determine your creditworthiness.
What happens after my mortgage is approved?
Once your mortgage is approved, you’ll be cleared to close, sign paperwork and get funding for your purchase or refinance.
When you’re ready to take the next step, Rate’s mortgage could help make your homebuying journey fast and stress-free.
*Rate Inc.'s Same Day Mortgage promotion offers qualified customers who provide certain required financial information/documentation within 24 hours of locking a rate on a mortgage loan the opportunity to receive a loan approval within 1 business day of timely submission of documentation and does not suggest that the borrower will receive funding on the same day as their application submission. Rate, Inc. cannot guarantee that a loan will be approved or that a closing will occur within a specific timeframe. Applicant subject to credit and underwriting approval. Restrictions apply. Visit rate.com/same-day-mortgage for terms and conditions.