Once a mortgage application has been completed, the mortgage loan is prepared for opening. Once again, this is a less than a heroic effort on our part as Lender’s to create ambiguity around the mortgage process. Many borrowers justifiably confuse the term “loan opening” with what is technically known as the “loan closing”: when the borrower becomes both a homeowner and mortgage payment owner! In truth, the loan opening is the formal term given to the moment at which the loan terms are disclosed to the borrower. In most cases, loan opening occurs within five days after the mortgage application has been completed.
The “Initial Loan Disclosure” (aka “Loan Estimate”), as it is formally defined, provides the borrower with key information regarding the loan amount, the payback period (30 years, etc.), the interest rate and other important elements of the mortgage. Most of what is included with the initial loan disclosure package is information pertaining to the consumer’s (or borrower’s) rights. The loan is “opened” with the dual purpose of informing the borrower they are entering into a promise to pay back a loan and begin the formal loan processing activities. At this point in typical mortgage loan proceedings, the borrower can transition focus to fulfilling inspection obligations and other aspects of the purchase transaction. The borrower should anticipate 1 week between application and the loan opening milestone to be completed.
As I mentioned earlier, the home buyer’s involvement with most of the early loan processing activities may be limited in scope. In most cases, your competent and forward-looking loan officer has already procured from you the documentation required to facilitate the loan processor’s role in making sure your application is “complete”. There may be some additional requests for supporting documents from the borrower, such as a recent pay statement or bank statement. But, the majority of the “up-front” documents have likely been satisfied and submitted to your loan officer’s processing team without much ado. What happens next is, without question, exactly what Tom Petty was referring to when he penned The Waiting (“is the hardest part”): the wait for the coveted appraisal inspection and report! Undeniably, one of the more stress-prone periods of the mortgage lending process for buyers, the appraisal inspection usually takes 7 to 14 days complete, depending on the property features. In most (legal) cases, your mortgage loan officer is likely in connect with the appraiser or appraisal management company (AMC) through his underwriter. At the time an appraisal is ordered, a due date is assigned for the appraiser to agree to before accepting the request for the appraisal. In most cases, that is 7 to 10 days from the date the appraiser accepts the appraisal. At the point the appraisal has been provided to the lending team, you can expect to be less than 24 days into the loan process.
Recapping, to this point, we have completed the application, opened the loan, and ordered the appraisal. What follows is the “back half” of the mortgage lending process, and hopefully the most productive! Technically, the underwriting review begins well before the appraisal report has been provided, but we are addressing it as a subsequent “step” in our six-step process. The underwriting review is where the “rubber meets the road” on the mortgage lending journey. The underwriter is the ultimate approver (or denier <gasp!>) of the loan application for the homebuyer. During underwriting, the homebuyer may be asked to provide substantiating evidence supporting their loan eligibility. These requests will typically come from your loan officer or processor and are usually document related in nature. In most cases, the borrower is transparent to the intensity of the underwriting process on the lender’s side, as most of the work involves verifying information pertinent to submitting a “complete” loan package to the investor who will fund the purchase.
Ultimately, the goal of the underwriting process is to issue the “loan commitment”. The loan commitment provides a high level of assurance to the homebuyer, the buyer’s real estate agent and, perhaps most importantly, the seller’s real estate agent that the borrower is considered a “good” applicant to whom the lender is willing to provide the funds for the purchase of their home. This is often referred to as “closing” the loan. The loan commitment will include a statement of the borrower’s creditworthiness, as well as a comprehensive list of the outstanding “conditions” that will need to be satisfied before the loan can close. These conditions will include evidence of an acceptable appraisal report; verification of sufficient funds in the borrower’s account to pay for closing costs and down payment; and other items that the underwriter deems necessary in order to provide the investor with a complete and quality loan file. The loan commitment is typically due 10 to 14 days before closing. Your lender’s processing and underwriting team will ensure they are working towards meeting your loan commitment date.
With the underwriter’s job complete, your lender’s closing department takes the baton in driving your loan package to the closing table, on time and ready for signing. In some cases, there may be additional requests for documents prior to the “clear to close” being issued. But, rest assured, once the closing team is managing your loan, you are in the home stretch! Pre-closing activities are typically concluded in 3 to 5 days and mostly occur between the closing team and the title and abstract company who will be facilitating your closing. You can expect approximately 1 week between the time your clear to close is issued and your closing date.
So, looking at our process “end-to-end”, it should be evident there are a significant number of factors that contribute to how long it takes for your mortgage application to be completed. As we have also learned, the mortgage application is more so a journey than it is an event. Depending on the complexity of your own purchase scenario, it is safe to expect a 30 to the 45-day application cycle. However, as with most things in life, there are scenarios where that cycle may be substantially shortened and possibly even lengthened. Regardless, your knowledge of the process and the timing between major milestones will help prepare you to close on your schedule!