Thank you for working with me on your application for a home purchase mortgage. The information below should help set your expectations and explain the process:
After taking your loan application I will contact the title company. They will send me an estimate of their fees. The only additional fees would be for an appraisal and lender fees. Because I will know the lender and appraisal fees I will have a very close idea of how much your GROSS closing costs will be.
I use, and stress, the word “gross” because, depending on your loan parameters, I can probably get you a lender CREDIT to offset some, or all, of those fees.
I will securely send you application documents to sign containing fees, lender credit and interest rate. These will all be estimates as your loan will not be locked at this point. In all likelihood any errors or typo’s on the application won’t matter, so if you are OK with it just let me know. In all honesty underwriter’s give little or no credence to information on the loan application because they only go off what they can VERIFY – for example paystubs, bank statements, or W2’s etc.
We will submit your signed application and supporting documents to the lender. After submission the LENDER will send you and any other borrower’s on the application some electronic documents including a Loan Estimate (LE) to sign – usually within 48 hours. Please keep your eye on your spam folder in case those emails go there. WE CANNOT LOCK YOUR INTEREST RATE UNTIL YOU HAVE SIGNED THOSE DOCUMENTS.
IMPORTANT: Lenders use software that generates AVERAGE interest rate and fees for the these initial ESTIMATES and they will often include items like an appraisal fee (even if one isn’t needed) and they tend to over-estimate recording fees and title fees substantially.
There are complicated reason’s why the fees on these ESTIMATES are higher than they end up being, but please know that if you have any questions THE MOST ACCURATE FEE ESTIMATES WILL ALWAYS COME FROM ME (and not the lender) and I am always happy to verify anything via email so you have written proof.
It is also important to know that these initial lender estimates are NOT binding documents and don’t commit you to any rate or fees, they are purely estimates.
After submission I will text or email you the current rates and fees (if any). Rates and the fees (if any) associated with each interest rate change daily UNTIL LOCKED. Normally I’ll offer you two options 0.125% apart. The two options below are purely EXAMPLES and not indicative of current rates:
3.000% – Lender CREDIT towards your closing costs = $3,000
3.125% – Lender CREDIT towards your closing costs = $1,800
It is always your choice whether to “lock” the rate (which guarantees you that rate and any associated fees and lender credit if applicable) or you can choose to “float” – which means your file will continue through the lender’s pipeline but your rate and net fees (if any) are not guaranteed. You are under no obligation to lock if you choose not to – just know that it’s like the stock market – playing the waiting game may either be a winning or losing strategy for reason’s beyond our control.
We will order your appraisal. The lender will email you an appraisal payment link, typically within 48 hours after the order. The appraiser will call you, again normally within 48 hours to set up a time to an appraisal appointment.
Your file will have already been making it’s way through the lender’s pipeline and, depending on loan volume it can take 2 – 7 days for an underwriting decision. The lender’s approval will actually be a “conditional approval” – meaning that we have to meet all the lender conditions for them to fund the loan. At this point I may ask you for more documents if needed to get those conditions signed off.
It is important to know that the underwriter doesn’t just “make up” these conditions. In fact in order to avoid discrimination and to make sure the loan can be packaged as a saleable asset by the wholesale lender they have to make sure they follow the very strict Fannie Mae or Freddie Mac guidelines to the tee. These guidelines are hundreds of pages long.
The underwriter has to make sure he or she goes EXACTLY off the guidelines. From the lender’s perspective the importance of this cannot be overstated. To know why you first need to understand that your mortgage will be a saleable product once it is funded. It could, and probably will, be sold to a big bank at some point. And if, heaven forbid, you defaulted on your loan the lender at that time would immediately get their legal team on board to go through the loan application with a very fine tooth comb.
Why? Because if they can find just one error (for example the wholesale underwriter didn’t ask for an updated paystub, or a page from a bank statement was missing) the bank could turn around and force the wholesale lender to buy the loan back. This is a disastrous situation for the wholesale lender and something they need to avoid at all costs. This is why your file is underwritten so tightly and is audited a couple of times over to make sure NOTHING has been underwritten incorrectly.
This part of the process can be very frustrating for some people and frankly your application will take on a life of it’s own as it underwritten. At a bare minimum some of your documents will probably go “stale” during the process. What this means is, say for example we submit your application on July 1st and include your June 30th bank statements then once we go past July 31st the underwriter will require your updated (July 31st) bank statement and most likely updated paystubs.
It should also be noted that items like large deposits showing on your bank statements need to be explained and paper trailed. This is not because some low level employee is having a bad day or being picky. It is because it is required by law. The government have essentially made mortgage underwriters their “eyes” to look out for money launderers and terrorists. And while on topic, please don’t shoot the messenger! Trust me, my life would be much easier too if we didn’t have to deal with the conditions these requirements generate!
As we approach the finishing line the lender will generate a Closing Disclosure (“CD”). Under current law you cannot sign closing documents within 3 days after ALL applicants have signed the CD – so it’s very important you sign the same day you receive it because this wait period already burns up 3 precious days of your rate lock.
IMPORTANT: As discussed earlier the Loan Estimate (LE) contains what can only be described as “wild” *estimates* of fees and interest rate, and the CD is similar in that:
a) The fees are often WAY over-estimated.
b) It may mention a charge for an appraisal (even if you received an appraisal waiver meaning no fee).
c) It clearly states that it is NOT a binding document.
Note: during the process I am constantly in touch with the title company on your transaction. They will periodically send me an updated Estimated Settlement Statement as they obtain new information. These title company estimates are always MUCH more accurate than any lender documents at this point so please reach out to me for an updated statement any time you would like.
Once all of your “prior-to-documents” conditions have been removed the lender will draw up your closing documents and send them to the title company. The title company will then call you to sign the documents in front of a notary. For most people this works best at their home. Signing appointments can be scheduled for any time – 24/7!
After your closing documents have been signed they will be sent back to the lender and the documents you signed will be scrutinzed by a funding auditor for missing signatures or dates etc. Your file will also go through another rigorous internal audit by the lender. As mentioned earlier the wholesale lender needs to make sure you file is 100% compliant with current regulations and Fannie and Freddie guidelines.
Once these audits are complete a set of “prior-to-funding” conditions will be generated by the funder. We will work closely with you and the funder to get those conditions removed. This may require some additional documents from you, for example updated paystub or bank statements or clarification of an item that was flagged during the audit. Again, our lives and yours would be much easier without these extra requirements but we have to play the game!
Once all funding conditions have been signed off your loan will fund. I will of course keep you posted. If you have any money coming back to you from the title company you should get it within a few days. Any money coming back to you from what will then be your old lender you should get within a couple of weeks.
Hope this is helpful information. Feel free to contact me if you have any questions.