The Final Loan Approval: What's The Document?

The final approval of a loan is a significant milestone, but it does not signify the end of the process. The borrower must still sign the final documents and pay the closing costs. The closing documents are typically available a day or two before closing, and the borrower must sign them using a blue pen. The borrower must also bring their cash to close, which must come from their account or a donor's account if gift funds are involved. The final approval is given by the underwriter, who assesses the borrower's ability to repay the loan by reviewing their bank statements, credit history, and pay stubs. The underwriter also verifies the property's value to ensure it is worth the loan amount. Once the underwriter grants final approval, the lender conducts a final review and quality control check before transferring the funds to the escrow company.

Final approval from the underwriter

The underwriter is responsible for assessing the borrower's financials, debt obligations, and employment record to ensure they can afford the loan. They also consider the property value to assess the risk of extending a home loan. To do this, they review financial documents such as bank statements, credit history, pay stubs, and tax returns for self-employed borrowers.

Before final approval, the underwriter may issue a conditional approval, indicating that the loan has been approved in principle but that further items or conditions are required. These conditions may include providing additional documentation, such as a letter explaining any new credit inquiries since the initial credit report, or paying off certain debts. The borrower's loan officer will submit these conditions back to the underwriter, who will then issue a "clear to close" if they are satisfied.

Once final approval is received from the underwriter, the lender is ready to close the loan and fund the purchase. However, the borrower still has a few more steps to complete, including signing final documents and paying closing costs. The lender will also conduct a final review and quality control check, verifying the borrower's employment and credit report one last time. Therefore, it is important for borrowers to maintain financial stability and avoid taking on new debt or making significant purchases until the loan process is complete.

The lender's final review

The loan approval process involves a series of steps, and the lender's final review is a critical stage in this process. At this stage, the lender conducts an extensive review of the borrower's information to ensure that all conditions are met and that the borrower is financially capable of repaying the loan. This process can take several weeks, and the exact timeline depends on various factors, including the borrower's financial circumstances and the lender's requirements.

During the lender's final review, the underwriter plays a crucial role. The underwriter is responsible for assessing the borrower's financials, employment records, and debt obligations. They also evaluate whether the property's value justifies the loan amount. This process helps the lender determine the level of risk associated with granting the loan. The underwriter will request various documents, such as bank statements, credit history, pay stubs, and employment verification. For self-employed borrowers, tax return transcripts may also be required.

Prior to the lender's final review, the borrower typically receives conditional approval, indicating that the underwriter has approved the loan in principle but requires additional information or conditions to be met. These conditions may include providing specific documents or meeting certain financial criteria. The borrower should anticipate the documentation requirements and respond promptly to any requests from the underwriter to expedite the process.

Once the lender's final review is complete and approval is granted, the file is assigned to a Closer. The lender's Closer collaborates with attorneys to prepare closing instructions and send the necessary documents to the title company. The closing process involves signing the final documents, providing funds for closing, and ensuring that all signatures match the loan documents exactly. The closing funds must come from the borrower's account or the donor's account in the case of gift funds. The borrower should initiate the transfer of funds to the title company before the funding date.

Quality control checks

The QC program should define the lender's standards for loan quality and establish processes to achieve those standards. It should also mitigate risks associated with the lender's origination processes. The lender's QC selection process must include a representative sample of mortgage loans to ensure they meet the required standards. This sample should be structured so that transactions from each third-party originator are reviewed at least annually. The QC program should also include mechanisms for monitoring the quality of work performed by employees, contractors, vendors, and other third parties involved in loan origination, property appraisal, processing, underwriting, appraisal review, and closing functions.

Additionally, the lender's written QC plan should outline processes for evaluating and monitoring the overall quality of loan production and its reverification procedures. This includes assessing the accuracy and integrity of the information used to support the lending decision and documenting any defects identified. The review must also evaluate the accuracy and completeness of the loan application, the existence and accuracy of underwriting documents, and a data integrity review. Lenders must select loans for post-closing QC reviews on at least a monthly basis, using both random and discretionary selection processes. The random selection process should include a minimum of 10% of the loans originated or acquired from a third party, unless a statistical sampling methodology is used.

Mortgage quality control also involves preparing documents, obtaining signatures, providing disclosures, and maintaining proper documentation. This includes ensuring that the loan documentation is complete and in order, as banks and credit unions may be required to buy back sold loans if documentation issues are identified later. Monitoring escrow levels, issuing refunds, and requiring additional payments are also important steps in the process. Adequate document management and tracking processes are vital to ensure the integrity of the loan approval process.

Closing day

Before Closing Day

In the lead-up to closing day, there are several steps that need to be completed. Firstly, the buyer will need to satisfy all the conditions set by the lender. These conditions fall into two categories: "prior to documents" and "prior to funding". "Prior to documents" refers to the standards the buyer must meet before the lender issues the loan documents. "Prior to funding" conditions are typically easy for the buyer to meet and often deal with procedural matters. Once all the conditions have been met, the file will be sent back to the underwriter for final approval. The underwriter will review the file to ensure that all requirements for underwriting and auditing have been met.

On Closing Day

On closing day, the buyer has two primary responsibilities: signing legal documents and paying closing costs. It is crucial to carefully read and understand all the legal documents before signing. The buyer will need to provide identification documents, including a driver's license or passport, a marriage certificate (if applicable), and proof of homeowners' insurance. The buyer will then sign several documents related to the property sale, including the closing disclosure, the mortgage document, a promissory note, and the property deed.

The closing costs typically include closing costs associated with the loan, the down payment, and any prepaid interest or property taxes due. These expenses are detailed in the Closing Disclosure document, which the buyer should receive a few days before closing. The buyer can pay these costs by providing a cashier's check or wiring money to the title company.

It is recommended to do a final walk-through of the property before closing to ensure that any agreed-upon repairs have been completed and that the previous owner has removed all unwanted items.

After Closing Day

Once the closing is complete, a title company employee will take the deed to the county's administrative offices to be formally recorded. At this point, the home purchase becomes a matter of public record. The recording fee is usually part of the closing costs. The funding date, when the lender transfers the loan funds, is usually the same as the closing date but may be earlier. It is important to note that the buyer will pay interest on the loan from the funding date, not the closing date.

The loan closing package

One of the most important documents in the closing package is the Closing Disclosure (CD). The CD provides the exact amount of money due at closing and lays out all the details of your home loan, including the principal loan amount, interest rate, and your total monthly payment. It also includes information about closing costs and how much money you need to bring to the closing table. The final CD is typically available a day or two before closing.

Another crucial document is the promissory note, sometimes simply called "the note". This is your signed promise to repay your mortgage according to the agreed-upon terms. It outlines the amount you owe, repayment dates, and the total length of the repayment period. The promissory note also explains the consequences of non-payment or late payment.

If you are refinancing an existing home loan, you will also find a right-to-cancel form in your closing package. This form allows you to cancel your new loan within three days of signing. It provides information about the process and consequences of cancelling your home loan.

Other standard loan closing documents may include IRS Form 4506 or 4506-T, which authorises the lender to obtain copies of your tax returns directly from the IRS. There may also be various affidavits signed by the buyer, such as a name affidavit acknowledging any variations in the name. For VA loans, there is also VA Form 1820, which certifies that the lender has complied with VA loan guidelines and that the buyer intends to occupy the property.

Frequently asked questions