Home Loan Approval Process

Pre-approval

A prospective homebuyer can begin the home loan approval process after finding the home he wants to buy or on a pre-approval basis. When a homeowner is pre-approved, he then can shop for a home knowing that a mortgage loan is available. The final approval process involves the property to be purchased and follows a standard set of guidelines set out by state mortgage regulators.

Preparation

Bankers and mortgage lenders need to perform a credit check and confirm all the financial information from the buyer before any other steps are taken in the approval process. Potential homeowners are expected to bring bank statements, proof of employment, previous tax records and outstanding bills to the lender in the initial interview. An application is filled out, and the appropriate fee is collected from the lender for processing the application. If a home has already been found, the lender may ask for an appraisal fee in the first meeting as well. While many lenders can make a determination on whether an applicant will be approved at that first meeting, it may take anywhere from one to six weeks to receive a final notice.

House

Once the prospective homebuyer has found a home, the buyer makes an offer to the seller. Negotiations may ensue between both parties or their real estate agents until an agreement is reached. The buyer then calls the lender that gave approval for a loan and continues with the process. The property must be appraised before the lender will agree to loan the amount requested. The appraiser provides the lender with an overview of the property's condition, the going sales prices for comparable properties in the area, available infrastructure in place and a quote as to the value of the house and land. Most mortgages are based on 80 percent of the estimated value of the property with an expected 20 percent down payment required from the buyer. There are a number of programs available however that can provide up to 100 percent of the value if the buyer meets the qualifications of the program.

Closing

Prior to signing all the final papers, the lender will require an inspection of the property and the home to ensure the condition of the property meets the estimated value provided by the appraiser. Unlike an appraisal, an inspection is a detailed report of every aspect of the property. Electrical and plumbing systems are reviewed. The inspector moves from room to room in the house and checks out the sturdiness of the flooring, the condition of the walls and appliances as well as the quality of the windows, the roof and the exterior structural integrity. An inspector checks for signs of insect infestation. Often a termite inspection and report also are required by the lender prior to closing. During the inspection process, the seller may be asked to make repairs or adjust the price. The mortgage lender hires a company to perform a title search to make sure the property is cleared for sale. Once the lender receives all the final reports, the closing papers are drawn up and a date set for signing the final documents.

References

• BCS Alliance
• The Mortgage Resource Center
• U.S. Department of Housing and Urban Development

Resources

• Federal Reserve