How Purchase Loans are Made:

A Step-By-Step Walkthrough

  1. Pre-Approval – Lenders are encouraging buyers to get pre-approved for a mortgage even before they begin looking for a house. This way, buyers know ahead of time how much house they can afford.
  2. Loan Search – Although buyers often use a lender recommended by their Realtor, some prefer to do their own comparisons. Borrowers may choose to contact a mortgage broker who has access to a variety of loans.
  3. The Hunt – At this point, the buyer begins shopping for a house. When the right one is found, the terms of the sale are negotiated, including the sale price and often the type and conditions of the loan being sought.
  4. Loan Application – It’s crucial to supply the lender with as much information as possible, as accurately as possible. All outstanding debts as well as assets and income should be included.
  5. Documentation – Paperwork supporting the application must also be submitted. Information commonly sought includes pay stubs, two years’ tax returns, and account statements verifying the source of the down payment, funds to close and reserves.
  6. Appraisal – Lenders require an appraisal on all home sales. This step could jeopardize a deal if a big discrepancy were to exist between the home’s sale price and appraised value.
  7. Title Search – This is the time when any liens against the property are discovered. A lien may have been placed on a property to ensure payment of outstanding debts by the owner. All liens must be cleared before a transaction can be completed.
  8. Home Inspection – Many buyer’s request a home inspection and some problems may need to be repaired before finalizing the sale.
  9. Processor’s Review – The lender’s loan processor packages all pertinent information to be sent to the lending underwriter, including any explanations that may be needed, such as reasons for derogatory credit.
  10. Underwriter’s Review – Based on the information put together by both the loan executive and the processor, the underwriter makes the final decision on whether a loan is approved.
  11. Mortgage Insurance – Many lenders require private mortgage insurance when borrowers put down less than 20 percent on a loan. Even if a loan meets the standards of a lender, a mortgage insurance company could choose to deny coverage.
  12. Approval, denial or counter offer – In order to approve a loan, the lender may ask the borrowers to put more money down to improve the debt-to-income ratio. The borrower may also need a bigger down payment if the property appraises for less than the purchase price.
  13. Insurance – Lenders require fire and hazard insurance on the replacement value of the structure. Flood insurance will also be required if the property is located in a flood zone. In California, some lenders require earthquake insurance on condominiums.
  14. Signing – Final loan and escrow documents are signed.
  15. Funding – The lender sends a wire or check for the amount of the loan to the title company.
  16. Close of Escrow – Documents transferring title are recorded with the County Recorder.
  17. Confirmation of Recording – The title company then authorizes the escrow company to draft a check to the seller.
  18. Buyer Begins Making Mortgage Payments