The mortgage process in the US is the process by which lenders or banks evaluate a borrower’s credibility and risk portfolio to gauge whether any mortgage loan they extend to them will be repaid in full without delays. Lenders and banks use Mortgage Loan Officers to assist potential clients in finding the appropriate financial aid for their home or property purchase. The average MLO has invested over 5 years in financial education and job training before starting their career, which provides a solid foundation to assist with the tedious process of getting a mortgage.
Both lenders and potential homeowners need to be able to trust the individuals putting together mortgage recommendations, which is why part of the screening for MLOs includes credit checks and criminal backgrounds to ensure the individual has displayed financial responsibility. When a leader or bank outsources the mortgage processing, they work with MLOs at a BPO. Mortgage BPOs have long been key players in getting mortgage loans processed in an efficient manner. They are highly qualified in analyzing extensive documentation and ensuring the accuracy and authenticity of all data provided on behalf of the lender within tight time constraints.
To understand the entire mortgage loan process in the US a little better, let’s see what it entails:
Pre-Approval
This portion of the mortgage process involves the lender probing the borrower’s income, debts, assets, etc. to determine if they are a good candidate for a loan. Pre-approval does not mean that the lender will actually extend a mortgage loan to the borrower, although it is a good sign. This part of the process is also critical as a pre-approval letter can show a home seller that the borrower can afford their property and has the financial means to back up their purchase offer. It’s also important to be aware that there are government backed options available for you when you’re looking for a loan. FHA loans and USDA home loans are great options to help finance your new home.
Purchase Agreement
Once a pre-approval has been granted, a home purchase agreement needs to be drafted, which will state the agreed-upon price and the terms and conditions for the sale of the property. It will also outline the circumstances under which either party may legally back out of the transaction. mortgage processing companies are adept at analyzing this document to check for any missing details or inconsistencies that may bring the property transaction to a halt.
Mortgage Loan Application
Most lenders in the US will use the Uniform Residential Loan Application (URLA), also known as the Fannie Mae 1003 form, for mortgage loan applications. It will ask for extensive details about the borrower’s marital status, employment, salary, streams of income, assets, investments, debts, and delinquencies and require in-depth information about the home the borrower has set their sights on.
Loan Estimate
The borrower will then receive a Loan Estimate, which is a 3-page form outlining important details about the loan they applied for. It will be delivered to the borrower within 3 days of the lender receiving the loan application. It contains the initial estimated interest rate, closing costs, monthly payments, estimated insurance and taxes, and any special features like pre-payment penalties. Receiving this estimate does not mean that the loan has been approved, however.
Mortgage Processing
The application is then processed, where the Processor will order a property inspection, appraisal, title report, and credit report. He will examine the reports and appraisals to check for any legal property issues that may require further investigation. All the details contained in the application will then be verified for accuracy and integrity. The loan package is then assembled, and all the documents checked for completeness, in order to be submitted to the underwriter.
Underwriting
The underwriter will assess the borrower’s risk of defaulting on the loan and ensure that they meet the minimum requirements to qualify for it. They will review the borrower’s debt-to-income ratio, assets, credit history, and any other financial measures to forecast their ability to meet their mortgage payments. Underwriting is the stage at which the borrower will find out whether their loan has been approved or denied. It is important for borrowers to consider the pros and cons of different mortgage options, including reverse mortgages, during this stage.
Reverse mortgages can provide financial benefits such as access to home equity and the ability to receive regular payments, but they also come with considerations such as potential impacts on inheritance and eligibility for government assistance programs. Assessing these reverse mortgages pros and cons can help borrowers make informed decisions about their home financing and choose the option that aligns with their financial goals and circumstances.
Closing
In the US, a Closing Disclosure (CD) that outlines the final details of the loan, from the monthly projected payments and loan terms to the total closing costs, will be given to the borrower at least 3 days before the closing date. Once the file is transferred to the closing department, all down payments and closing costs will have to be paid. It is at this point that the lender will release the funds for the borrower to purchase the property.
Bottom Line
Mortgage processing is a lengthy, tedious, and document heavy multi-staged undertaking for mortgage lenders. Every level of the process requires a minute attention to detail and involves multiple quality control checks. Without these checks and balances, a mortgage lender may face grave legal consequences, not to mention huge financial losses from defaulting borrowers.
To ensure that lenders and banks are exposed to as limited risks as possible, mortgage BPOs step in to take the reins. To get the best suited mortgage for your individual requirements, you may want to work with a mortgage processing company that has a wealth of industry knowledge and expertise in your niche.
Salman is a prolific environmental writer, and has authored more than 500 articles in reputed journals, magazines and websites. He is proactively engaged in creating mass awareness on renewable energy, waste management, sustainability and conservation all over the world.
Salman can be reached on salman@cleantechloops.com
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