Explaining the Home Loan Process Part 3: Processing
02/01/2018 Kristin Demshki
You've made it through the mortgage loan application and now your application will start moving through the loan process on the way to the closing table. If you have ever wondered what goes on behind the scenes during this time, here’s your guide—including important ways you can help.
The time between the loan application and the closing is known as mortgage processing. During this step, your lender's loan processing team will double-check your file to make sure it is complete and accurate. This means collecting and verifying all the information you've supplied, ordering credit reports, and arranging for a home appraisal. Ultimately, all of this data will be used to determine your loan approval status.
What is a Loan Processor?
You may love your real estate agent and rely on your inspector, but the relatively unknown loan processor plays an equally important role in getting you the home you want. A loan processor, or Home Loan Specialist here at PennyMac, is a financial expert who collects and prepares all of the materials needed in order to secure a loan for a borrower. They will examine your application and verify all of the information provided on it. If any parts of your application are unclear or require further clarification, they may ask you for additional information in order to complete your loan application file.
Collecting Proof of Employment, Assets, Debt, Income, and Homeowners Insurance
Your loan processor's primary job is to verify all of the information you have provided on your mortgage application. This means checking your income verification (W-2s, pay stubs and/or tax returns), assets (checking and savings accounts), and outstanding debts (car and student loans)
Loan processors will pay particular attention to your income. Why is this? Well, lenders don't want your total monthly mortgage payments–principal, interest, property taxes, and homeowners insurance–to swallow up your monthly gross income. Remember, lenders want to be certain you will be able to comfortably manage your current obligations and your new monthly mortgage payments.
In addition, loan processors will make sure you have a current homeowners insurance policy for the house you are planning to buy or are currently refinancing. This insurance will protect you and your lender from suffering a financial catastrophe in the case of a fire, flood, etc.
In order for your lender to verify all of the factors that make up your overall financial situation, you will need to provide:
- Proof of Income: W2s, pay stubs and a phone call to your employer will be needed. If you have non-W2 income from sources like rental properties, 1099 work or child support, you will need to provide proof of that as well.
- Tax Returns: Make sure you have your tax returns (and all supporting documentation) for the past few years handy. You may need these to verify certain sources of income, especially if you’re self-employed.
- Statements for Assets and Debts: Make sure you have current statements for all banking and investment accounts listed on your application, as well as for any loans. You may need previous statements as well, so ensure you have easy access to them.
- Proof of Insurance: Ask your insurance agent for documentation that shows the coverage you have and proves that your insurance policies are current.
Ordering Appraisals, Credit Reports, and Payoff Information
Now that your lender has verified your financial situation, it’s time to pay close attention to the home you want to buy. The first step in that process is ordering an appraisal.
An appraisal is an expert's opinion of your home's current market value. It’s one of the most important components of loan processing because it will determine if a lender will be lending more money than what a home is worth. For this reason, it will ultimately affect just how much a bank is willing to lend.
Loan processors will also order a credit report. This document will report how you have handled and managed re-paying past bills (car loans, student loans, and home equity lines of credit). Looking at this history will enable the lender to predict your ability to make future mortgage payments in full and on time.
Lastly, if you're refinancing, your loan processor will request your payoff information (how much you still owe on your current home) from your present lender. Knowing this number will help your lender determine what your new monthly payment amount will be.
Your role in these three processes includes the following steps:
- Work with an Appraiser: You may need to work with an appraiser and be available to give them access to the property, especially if you are refinancing the home you live in.
- Check Your Credit Report: Make sure you check your credit report for accuracy early in the loan process. Have any errors removed to ensure your credit score is as strong as possible.
- Prep for Your Payoff: You will need to contact your current lender or work with your closing agent to request that payoff information is sent to you or your new lender. Make sure you have their contact information and understand the process.
The Role of Your Loan Underwriter
Once the loan processor finishes assembling your application, your file will be sent over to the underwriting team. Here, an underwriter will double check your financial profile one last time to make sure all the necessary documentation is present and accurate. Underwriters will also seek to clarify any inconsistencies or gaps in your application, by requesting letters of explanations (a document in which a borrower can explain why their income decreased, job changed, or credit score fell).
Then, the underwriter will decide to approve or deny your loan request.They do this by making sure that your unique financial situation meets all of the guidelines of the loan you are applying for. If approved, you'll be on to the final step and begin coordinating schedules to sign all the paperwork and wrap up the closing.
Finally, it’s important to know that slight variations in this process may occur as lenders may delegate responsibilities of loan originators (the banker or broker helping you through the mortgage process), loan processors, and underwriters a bit differently. One lender may handle all aspects of your loan from start to finish, while others may outsource processing, underwriting, or both. If you are confused by what you need to send to whom, ask your originator for guidance.
Tips for Quick and Painless Mortgage Processing
Completing the mortgage loan process can feel never-ending—particularly when you are waiting to move into your dream home. Fortunately, there are several things you can do to speed up the process:
- Make sure you provide your loan processor with all the necessary documentation early as possible and respond promptly to any requests.
- Stay in touch with your lender. Communication is the key to making the loan process move along quickly and smoothly.
- Proactively let your lender know if you have any changes in your employment, income, debt, insurance coverage or other things that may impact your loan.