Pre-qualification - Lenders are encouraging buyers to get pre-qualified for a mortgage even before they begin looking for a house. This way, buyers know ahead of time how much house they can afford. Neglecting to mention an outstanding car loan or a previous credit problem, for instance, could nullify the pre-qualification.
The Hunt - At this point, the buyer can begin shopping for a house. When the right one is found, the terms of the sale are negotiated, including the sale price and often the type and conditions of the loan being sought. A buyer sometimes will submit a loan pre-qualification letter to the seller, which in a competitive market, can tilt a sale in a buyer's favor.
Loan Application - It's crucial to supply the lender with as much information as possible, as accurately as possible. All outstanding debts as well as assets and income should be included. The loan representative is the borrower's main contact throughout the process.
Documentation - Paperwork supporting the application also must be submitted. Information commonly sought includes pay stubs, two years tax returns and account statements verifying the source of the down payment, funds to close and reserves.
Appraisal - Lenders require an appraisal on all home sales. This step could jeopardize a deal if a big discrepancy were to exist between the sale price and appraised value of the house.
Title Search - This is the time when any liens against the property are discovered. A lien may have been placed on a property to ensure payment of outstanding debts by the owner. All liens must be cleared before a transaction can be completed.
Termite Inspection - Most purchase loans require an inspection for termite and water damage. Some problems may need to be repaired before finalizing the sale.
Processor's Review - The lender's loan processor packages all pertinent information to be sent to the lending underwriter, including any explanations that may be needed, such as reasons for derogatory credit.
Underwriter's Review - Based on the information put together by both the loan representative and the processor, the underwriter makes the final decision on whether or not a loan is approved. Lenders are looking for borrowers who will make their payments on time and for property that will cover the cost of the investment if a buyer defaults.
Approval, denial or counter offer - In order to approve a loan, the lender may ask the borrowers to put more money down to improve the debt-to-income ratio. The borrower may also need a bigger down payment if the property appraises for less than the purchase price. In some cases, repairs or improvements on the property may be required. The lender may also have other conditions which must be met before issuing final loan approval and loan documents.