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What are the basic steps in the mortgage process?

There are several steps to take when securing a home loan. Here's a basic outline of the process.

Mortgage pre-approval
Before finding a home to buy, a pre-approval is needed to determine loan candidacy. Mortgage pre-approval is a financial pre-screening process in which the lender will review your (the borrower) income, assets, and debts to determine your eligibility. Once approved, a loan qualification range is provided to help you look for homes within your price-range. 

House hunting and purchase agreement 
Once you've been pre-approved, you can shop for a home to buy. When you find the home you'd like, an offer is made to the seller to accept. If the offer is accepted, a purchase agreement is used to document the proposed purchase price and agreement.

Mortgage loan application
Once the purchase agreement is signed, you'll complete a mortgage loan application. The application will ask for information about the property being purchased, the type of loan requested, and additional borrower information.

Mortgage processing
While the loan application is being processed, the loan processor will collect a variety of documents from you, including: bank statements, tax records, employment letters, purchase agreement, and more. The loan processor will also order a consumer credit report, verify your income and assets, and order a home appraisal to determine the property value.

Mortgage underwriting
Underwriting closely examines all loan documentation prepared by the loan processor to make sure it complies with lending requirements and guidelines. Their primary responsibility is to evaluate the level of risk associated with the loan while reviewing a borrowers credit history, debt-to-income ratio, assets, and other elements of the borrower's financial picture.

Mortgage loan approval and closing
Once the loan meets all requirements, it is “clear to close” and ready for funding. All applicable documents are sent to the title company that's chosen to handle the closing. You and the seller(s) must review and sign all the pertinent documents before "closing" so the funds can be disbursed.

Mortgage loan servicing
After closing, a mortgage servicer will manage the loan account for the duration of its open activity (life of the loan) and you become the homeowner. Services include, but aren't limited to: accepting and recording mortgage payments, calculating interest rates, managing escrow accounts, addressing default issues, and facilitating the foreclosure process, when necessary.

Mortgage servicing payments and escrow accounts
In addition to collecting the principle and interest payments each month, the mortgage servicer may collect property taxes and homeowner’s insurance payments on your behalf.

  • Depending on the loan program, you may be required to have an escrow account. Escrow accounts are established when homeowners pay extra money into an account to cover their annual or semi-annual taxes and insurance payments. Allowing the lender to handle these payments through an escrow account helps avoid being unprepared for a large annual or semi-annual bill.
  • Some lenders don't require homeowners to escrow these payments. In these scenarios, you pay the insurance premiums directly to the insurance company, and property taxes directly to the tax assessor.