How does the mortgage approval process work? Even though each bank or the lender has its own requirements, procedures, and steps to underwrite a mortgage but they all lead to one finding: does the borrower have the ability and the willingness to make the payments.
The mortgage approval process starts when the lender receives your signed mortgage application along with a signed consent form.
The bank or the mortgage broker will give you a list of the supporting documents that they will need in order to process your application. Once the mortgage broker has a fully completed mortgage application and all of the supporting documents, the mortgage broker or the mortgage lender will start to process your mortgage application and let you know if they still need any more supporting documents or explanations from you.
Provided you meet the basic requirements and after doing the preliminary debt ratios if the underwriter feels yours is a doable mortgage, only then the underwriter will pull a credit report. If your credit score is above the minimum required for your type of mortgage, your application will move to the next step. If the lender needs a credit explanation on some items in your credit report he will ask for it.
Now that the underwriter has your credit report and knows all of your liabilities, he can accurately figure out your true total debt ratios. If your gross and total debt ratios meet the industry standard for your type of mortgage, then the bank will issue you an approval subject to appraisal and any other conditions.
At this point, the lender will issue you a commitment or approval letter outlining the amount of the mortgage, interest rate, terms, and conditions.
This commitment will be subject to the lender receiving a satisfactory appraisal done by one of its approved appraisers. The approval will also be subject to other pending conditions, if any, that still need to be met. At times, the lender may require to see the appraisal before the lender issues an approval.
You will need to sign this commitment letter and send it back to the lender. You may also be required to pay earnest money or good faith deposit of a certain amount. That is because it costs the bank a lot to get the mortgage docs drawn up by their lawyer and if later you cancel the mortgage, they will end up paying their lawyer. If you go through with the mortgage, you will be credited with the earnest money deposit.
If the appraisal comes back as expected, your file will move to the next step. If the appraisal comes lower, then the lender may either decline the mortgage or adjust the amount of the mortgage and issue you a new commitment letter.
After all of the conditions have been satisfied, your mortgage will move to the instruction phase. What this means is that the lender will instruct their Lawyer to draw up the mortgage docs that they are ready to prepare and register the mortgage and disburse the funds.
Depending on the kind of mortgage, you may also have to engage your own lawyer or a notary to act on your behalf.
The Lawyer or the Notary will set up an appointment with you for you to sign the mortgage documents. Make sure you take your IDs, your homeowner insurance agents’ contact information unless you have already provided that, with you and also any other documents that the lawyer has requested.
Once the lender receives your signed mortgage documents, the lender will review them for accuracy and completeness. If the lender is satisfied, the lender will fund the mortgage. If there are any mortgages, charges, loans, credit cards, etc. that need to be paid-off from the mortgage proceeds, your lawyer will pay them first and the net proceeds will be disbursed to you.
Congratulations on your mortgage closing. Now, all you have to do is to make your payments on time. Remember, good credit has its rewards!
Be kind whenever possible. It is always possible.