Understanding what happens behind the scenes with your mortgage approval can help you be better prepared. Before your mortgage can be approved by the lender, you must first complete a few steps. Preparing for these steps beforehand can help the approval process move quicker. The sooner your loan can be approved, the faster you can move into your new home or refinance your current loan.
Before you begin house shopping, you will want to know if you can qualify for a mortgage based on your current financial situation. Research a few mortgage lenders to compare rates and loan programs. Once you have chosen a lender, apply for a preapproval. The preapproval ensures the amount the lender will lend you if you close within a certain time period. Many sellers want to see this preapproval before they even sign a contract.
After you have signed a purchase contract or chosen a mortgage lender for a refinance, you’ll need to complete an application and send your documentation. Most lenders request recent pay stubs and tax returns from the last two years, two months of bank statements and proof of any additional income.
Once you complete the application, your loan will go into underwriting. The underwriter will look at your income and assets to confirm they meet the bank’s criteria to qualify for a loan. The underwriter will evaluate your debt-to- income ratio -- the amount you make each month compare with your monthly debts. He will also look at your credit history, any assets you may own, and your current employment. The underwriter also may ask for additional information.
While your loan is in underwriting, the lender will order an appraisal to be done on the property to determine its market value. The appraiser will evaluate the sale price of similar properties that have recently sold in your area. Once the appraisal is complete, the underwriter will approve your loan if your financial status at the time of loan application is the same.
Close your loan shortly after final underwriting approval to secure your interest rate, ideally one to two weeks after approval. The lender prepares your closing documents and sends them to your attorney or the closing agent, usually a title and escrow company, for you to sign. At closing, you'll pay the fees associated with your loan, such as the appraisal and discount points.