The home buying process can seem complicated and overwhelming for the average buyer. Helping your customers better understand the different phases in the mortgage loan process early on – and what is expected of them at each step – can help make the process less intimidating and reduce frustration.
Phase 1 – Origination:
This begins the mortgage process and is actually several steps. The loan officer will help the customer learn what their mortgage financing options are through a pre-qualification process, and assist with filling out a loan application and gathering the necessary documents.
Customers should know: They’ll need to provide income, asset and debt information, and their Social Security number to allow the lender to pull their credit report.
Phase 2 – Processing:
The loan processor will then collect, verify and review all required documentation provided by the buyer, order appraisals, order a title search and send all this information in a complete package to underwriting.
Customers should know: Processors will be checking for errors, discrepancies and possible missing information, so customers need to understand how critical it is to provide accurate, complete information in a timely manner.
Phase 3 – Underwriting:
The underwriter analyzes the documentation for accuracy and evaluates the customer’s ability to repay the loan based on their credit and employment histories. An appraisal and title review is completed to ensure the loan program guidelines are met, the title is clear, and to determine risk acceptability.
Customers should know: This is “decision time” as the underwriter weighs the risk of lending money and approves or denies the loan – so customers may be asked for additional financial information even at this stage.
Phase 4 – Closing (or Escrow):
The loan processor coordinates all aspects of the closing with the buyer and the closing agent and/or attorney. The closing agent conducts the closing, ensures that all necessary documents are signed, assures closing fees and escrow payments are made, and confirms that all documents are sent out to be recorded according to state and local requirements.
Customers should know: Before closing they should receive information explaining the closing costs, including a standardized Good Faith Estimate (GFE) of how much cash they will need at closing.
With keys in hand, the process is completed for the homebuyer, but there are still a number of steps that take place behind the scenes after closing.
- Warehousing: About 10 days after closing, the lender uses their warehouse line [line of credit] to finance the new loan until it is “sold” to an investor on the secondary market.
- Secondary market: Allows lenders to sell mortgages to investors, providing them [the lender] with new funds to offer home loans to new borrowers. Your customers’ mortgage rates are influenced by the yields demanded by these investors.
Typical investors of mortgage-backed securities in the secondary market include:
- Fannie Mae and Freddie Mac for conventional loans
- Ginnie Mae for FHA and VA loans
- Insurance companies, pension funds and private investors
- Shipping and delivery: Once an investor is secured, the loan is packaged with other loans,, and applicable documentation, and becomes part of a mortgage-backed security (MBS). These mortgage-backed securities are then delivered to the investor.
- Loan administration/servicing: A loan servicer takes care of the administrative duties once the mortgage-backed securities are delivered to the investor. This includes: customer support, collection of mortgage payments, management of escrow accounts and fund recovery efforts.
Thanks to Coldwell Banker Home Loans