Understanding the mortgage process is a constant frustration for consumers. One can search the web and find all kinds of long articles breaking the mortgage loan process into anywhere 
between 6 and 9 individual steps. Upon reading these, a consumer gets even more confused since each individual step is confusing in and of itself. Unfortunately, the wrong question is likely getting answered in these articles. Most mortgage clients don’t want to become experts on the minutia of processing and underwriting, they just want to know where to start and have an accurate context for why everything happens as it does. The answer for each of these questions lies in the same place.
The mortgage process begins and ends in the same place, with the mortgage loan application. It is filled out and signed at the beginning and updated for signature at the closing. But here’s the key point; every step of the mortgage process is dedicated to verifying a fact or validating an assumption on that was disclosed on the initial loan application. The loan application is broken in to 10 straightforward sections:
1) Mortgage type and terms requested
2) Property information and loan purpose
3) Borrower information
4) Employment information
5) Monthly income and housing expenses
6) Assets and liabilities
7) A summary of the credits (i.e. earnest money and the mortgage) and the costs (i.e. purchase price and closing costs) of the transaction
8) Miscellaneous affidavit section (this covers intent to occupy the property, citizenship and other items)
9) The agreement section (this is the fine print legalese and where the loan application is signed)
10) Information for government monitoring (this covers race, ethnicity and gender)
Nearly all documents a borrower is asked for or asked to sign will directly or indirectly relate to this document. Nearly all of the 3rd party reports and vendor services used in the loan process will directly or indirectly relate to this document. Throughout the process, as new or updated information is obtained by the lender, the application is updated and re-reconciled with underwriting guidelines. In short, almost all of the mortgage loan process is a collection of acts designed around verifying facts or validating assumptions in this document; the loan application.
Knowing this, what should a prospective borrower seek to do?
If asked to fill out an online application, a paper application or do one face to face with a loan officer. . . be thorough when the initial loan application is filled out. For instance, if there is approximately 11 thousand dollars in a savings account, don’t put 11 thousand dollars on the application if the real figure is 10,771.41. Use 10,771.41 as the figure for the application. If the income is approximately 4000 a month but in reality its 4166.67, make sure the figure on the initial application is 4166.67. Also, insist that your loan officer be accurate on the initial loan application. If you see errors, however small, make sure that he or she corrects them immediately. Don’t tolerate sloppiness.
This may seem like a tedious way to start the mortgage loan process but it has down line consequences. Benefits of an accurate initial loan application include better loan recommendations, faster processing, faster underwriting, a more predictable transaction but most of all . . . fewer if any surprises.
Sure the loan process has a lot of confusing moving parts but if you want to keep it simple, just know that it’s almost all about the accuracy of the loan application and you’ll be way ahead of the game!
Charles Dailey - Branch Manager, Loan Officer, Certified Military Housing Specialist - iLoan - NMLS ID# 79048 - CA DOC, MN DOC & WI DFI - 612.234.7283
The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer's search criteria.
The mortgage application is a simple process that a mortgage loan officer should be able to complete in 15-20 minutes. It is in no way complicated. Knowing the right questions to ask with an application in front of you make it easy. Above and beyond that, the borrower needs to provide income verification (W-2, pay stubs, tax returns if self employed) and copies of the last 2 months bank statement showing where the down payment and closing costs are coming from. That is all the borrower needs to provide. The lender will order the appraisal and the credit report. If the house appraises, the borrower's credit is good, the borrower represents enough income to support the payment and enough liquid assets to cover the down payment and closing costs, it is a slam dunk. Do't make a simple process complicated
Nice job, this is a well written explanation of the application process
Jason
Great explanation on this process. Please don't take shortcuts as they can come back to bite you.
Thank you for your comments.
If the loan application is in no way complicated, then my entire premise must be incorrect. Either that or problems with mortgages must be scarce. I think most would find the latter harder to believe and I guess I’m in the “most” category as I hear about them all the time.
The Niche Report published a great article a ways back called, “What are Realtors Demanding in Today’s Market?” by Casey Cunningham. In this article it was also asserted that the best thing a loan officer could do was take a good application but it was well supported. The author pointed out that in a recent survey by XINNIX (a great school for loan officers) where more than 90 percent of loan officers graded themselves excellent when it came to taking a complete and thorough loan application. Yet, when asked to measure themselves against the six vital steps to take a complete loan application (detailed in the XINNIX class of the same name) the group re-evaluated their performance and the grade dropped to less than 50 percent. What’s even more depressing is that this is a survey of people taking the initiative to spend money and go to a school to better themselves. I wonder what the outcome of the survey would have been for those that don’t take that kind of initiative?
When it comes to the loan application I think there is a chronic miscalculation of its significance and a chronic miscalculation of loan officer’s aptitude when it comes to being thorough and precise from the outset. Only with that kind of detail can a loan officer look at a completed loan application’s data in three dimensions and see the borrower profile interrelate with relevant government guidelines and investor overlays. Only with this perspective can a loan officer give trustworthy recommendations and adequately manage expectations. Lastly, for all loan pre-approvals relying on automated underwriting findings, and that would be most of them, those automated underwriting findings are only as good as the data run through them. Garbage in; garbage out.
But then again, maybe I’m wrong.
It is best to make sure you clients are using a good reputable lender. Otherwise you could be waisting your time.
Not wrong at all, Charles..in fact, you are spot on. This article should be read by every LO and borrower out there. Good stuff!
BRAVO!!! Great outline of the mortgage app and process. As you stated, it is all about taking as complete an app as possible from the get-go and verifying and documenting everything on it, including the subject property (where a large percentage of issues come up).
On another note, I agree with you that the mortage process is not a simple process and it's because it can get challenging and complicated that borrowers need a competent MLO who is experienced in not only closing loans but solving problems because they do come up. More so now than ever before and you're not wrong about that.
Great Post Man!
Charles -- Super advice on the importance of accuracy with the numbers as opposed to approximations. Those 'little' things can hang up the process when it could all have been avoided from the get-go.
Nice explanation Charles. Does a good job of laying out the expectations.
Great blog post Charles. This mortgage business is frustrating these days especially with FHA, MHP,DND x 2, etc. The pendulum has swung all the way in the other direction. I was supposed to close on a property 12/9/11. The buyer is going MHP(Mass Housing) She had chosen her bank before hiring me. Wish I had something to say on that. Then she is going for a grant. On top of that she is buying a DND (City of Boston Department of Neighborhood Development) below market house. So there are 3 entities besides the bank involved. We have one more. Then I had another one go south during the same period with a perfect.
to sign off and at this point all parties are frustrated. Horrible experience for all involved.
Great explanation of what consumers can expect from the process. Thanks.
Nice, simple explanation of the process. It is something that consumers should know. Everyone tends to make the process scary and complicated. Nice to see it broken down efficiently.
Charles,
Thanks for the article. My impression is that many consumers do not understand the importance of providing accurate and detailed information to their loan officer. Sometimes the detail just overwhelms them.
Please write another article about the many ways that buyers can sabotage their loan between loan application and closing. I just had a transaction go south because the buyer who was a teacher applied for maternity leave after we got into the process and the school system refused to confirm her base pay.
Very nice explanation of the process. It IS a stressful event for consumers, so it is great to have it broken down. Thanks! I look forward to more on what Carol just requested...
Thanks again for all of your comments. To Carol and Rachel, . . is this what you were looking for? http://activerain.com/blogsview/2120483/do-s-and-don-ts-with-credit-during-the-home-buying-process.
Charles - A financial expert once told me rounding all numbers is a red flag signaling the application is not accurate and you obviously agree. Do it right the first time and you won't have to waste time with a do-over is good advice.
As a listing agent, I find the lenders telling me often that something is different, and it usually probably one of thes issues.
Excellent~ A complete app is a processing and underwriting dream! May look into the XINNIX classes you mentioned - have never heard of them. thanks!
Jana
Well written and easy to understand explanation of the loan process. I have had Buyers learn the hard way that "rounding" is one of the worst missteps you can take when completing the app.
Hi Charles, very well written explanation of what for many consumers is a daunting document.
Good morning Charles
very useful and very educative blog.
the whole list of loan app process .... in order ....really helpful
thanks for sharing
best today and 12
onward
jimmy phan
Well done, Charles. I should write a post on the Reverse Mortgage loan application process. It's a bit different because we don't have the same employment, assets, credit or income requirements.
Very concise and timely information especially for first time buyers.
Charles:
Very nice explanation of the mortgage application process. I am going to use your information for a client who will be applying for a loan for the first time. Thank you for sharing.
Hey Charles, noticed the post from you- great info. hope all is well
Charles, I completely agree with you about how complicated it can get. The main thing that is important is to have correct information upfront so less is liekly to go wrong. We also need to collect any supporting documents ASAP so the process can go more smoothly. It is hard for most clients to understand why we need so much documentation, so we really need to explain this to them right up fron.
I agree about the process. It's like turning on a light in your home, you just want it to work not necessarily learn about electricity.
This a great blog, which i'm going to send to a few of my clients.
Charles the process is such a mess the best people can do is look for a nice trusting face like yours and say "please don't screw me" as they go through the loan process. The loan process if like a full cavity search by a TSA agent. I advise people to not question - just do.
Hi Charles, great post and great summary of the loan app and processing!
Details, details... so important in the mortgage process! The little things can make such a difference. Good review.