PART 1 of a 3 Part Series!
I get asked this one a lot. And, fairly so, as I truly believe we have created an unjustified mystique to the “mortgage process” in this industry. The truth of the matter is that the mortgage application process is relatively simple, predictable and consistent. One common source of confusion that is infrequently distinguished by those of us in the mortgage profession, is the difference between a “pre-qualification” and “mortgage application”. Unfortunately, the two terms are used interchangeably in many real estate transaction circles, but each is its own, distinctive event with very different implications. Since we are primarily discussing the mortgage application process in this article, I will focus on that topic. However, for the sake of differentiating the two, it is important to understand that the primary goal of the “pre-qualification” is to provide a measurable assurance of the buyer’s eligibility for a mortgage to both the buyer and their real estate agent before an offer on a property is submitted. More commonly, the mortgage application will commence after an offer is accepted. We will take a look at the pre-qualification process, in detail, on its own. For now, let’s get into simply defining the mortgage application process.
To start, creating a vision of the steps involved with the mortgage application process will establish a framework we can further define in sequence. The mortgage application process, from the applicant perspective, consists of six steps: completion of the application, opening of the loan, ordering of the appraisal, underwriting review, issuing the loan commitment and final clear-to-close. Each step or “stage gate”, as you may hear them referred to, is characterized by its own set of responsibilities of the lender and the home buyer and clearly defined deliverables so that the process can continue to move forward in the home buyer’s interest. Let’s look at each of these steps in detail, with a focus on making it clearer from the home buying viewpoint.
So, what is a mortgage application? Well, from a technical perspective, it is a formal request for consideration of credit for the purchase of a home for which there will be an associated obligation of payback. Sounds wordy, right? It is. However, it is an important aspect of the mortgage process. One that is wholly controlled by the borrower. Without the borrowers consent to “make application”, the mortgage lender is powerless in her ability to extend a credit determination on the borrower’s behalf. Specifically, there are six attributes of the mortgage application that, as a whole, constitute a complete submission for credit consideration. They are:
1. The Borrower’s Name
2. The Borrower’s Income
3. The Borrower’s Social Security Number
4. The Address of the Property in consideration
5. An estimate of the property value
6. The mortgage amount desired by the Borrower
To be sure, there is more to the mortgage application, as a whole, than the attributes referenced above. Data points such as borrower’s employer, information on assets the Borrower has available to cover the costs of down payment and closing, and the Borrower’s current address are only three of the additional questions your licensed mortgage specialist will ask of you in order to fulfill the data set required by most underwriting professionals in order to fully determine your creditworthiness.