You were prequalified forever ago, it seems.
You have been looking at houses, for months.
You are finally under contract!
Wait…. What happens now?!
With the current state of the housing market, this is the mindset that most of our buyers find themselves in once they ratify a contract to purchase a new home. You’ve read it before and you will read it again; supply is low and demand is as high as it’s been in years. Homes are selling before even making it to the market, and you need to have made your offer yesterday. The push and stress to find a home and submit an offer leaves little room for understanding the process once you find your home. Don’t worry – let’s talk about it!
There are many important moving parts to the process – your realtor, your lender, and your title company. Let’s focus on the steps of the process that are specific to your mortgage loan. The ratified contract states your closing date. The moment we receive the contract, everyone is officially working toward this date. There is an enormous (and fabulous) team of people working behind your loan officer, which takes a great deal of coordination. Each party needs the time allotted to complete their responsibilities and close your loan on time.
Choosing your lender and being confident in your choice before writing a contract is important. The time frame from ratification to close leaves very little time for mortgage shopping and structuring the details of your mortgage loan. This should be handled in advance so that once you ratify the contract, everyone is ready to move quickly.
The real estate contract includes dates and timeframes for important events that will occur prior to closing. These dates are built into the contract to allow you the flexibility to continue to move forward once important information regarding your home, and your loan, is received. They also allow the seller to be certain that things are moving in the right direction and the closing date can be honored. These important dates (/events) include: (1) Home inspection, (2) Appraisal contingency, (3) Financing contingency / Loan commitment date, (4) Closing date
To hit these targeted dates, it is important that all parties start working as soon as the ratified contract is received. Communication and responsiveness from all parties is paramount to making this happen seamlessly.
The following are the steps of the process that take place after the contract is ratified that get you to the end goal – settlement!
- Lock your interest rate: You have shopped, compared estimates, and reviewed payments. However, until you have a contract (and a new address) you have not yet been able to lock the rate. The interest rate lock is tied to the specific address of the home. Now, you can finally lock in your rate! It will be important to ask your lender the length of the lock. Each rate lock has an expiration date and it is important to ensure that the length of the lock gets you to your closing date.
- Loan disclosures – Your lender will send your loan disclosure package to be signed either electronically or by hand. This is a package of documents that allow the lender to begin processing and underwriting your loan. These documents provide the needed verifications and permissions to proceed with ordering third party services. Once these signed disclosures are returned to your lender, they are off and running.
- Order appraisal – With the appropriate disclosure form signed (the “intent to proceed” document), an appraisal report will be ordered and completed on the home. The appraiser, a third party not affiliated with your transaction, is chosen randomly and is responsible for determining the value. It is extremely important to be sure that the home is valued relative to what you are paying for it. The value of your home is an important part of the loan process because your loan to value ratio, which was considered as an important part of the loan product choice, is based on the lesser of the appraised value or purchase price. Ensure that the value of the home is, at a minimum, in line with the purchase price is critical.
- Homeowners insurance: Until now, the homeowner’s insurance premium has been an estimate. With an address determined, you will move forward with obtaining your homeowners insurance policy. Initiating this process in the beginning will save you the stress of last minute insurance updates and changes. There are coverage requirements from the lender that need to be met and information that needs to be exchanged between your lender, insurance company, and title company. Being proactive will ensure that things continue to move along smoothly.
- Update supporting documents: “Supporting documents” refer to the paystubs, bank statements, tax returns, and seemingly every other financial document you can get your hands on, that you gave to your lender once you completed your loan application. Depending on how long ago you started the process, these may now be expired. The documents that are submitted in your loan file with your ratified contract should be the most recent version of these items. It is time to send updated copies to your lender so that things continue without delay.
- Processing/Underwriting: The processing and underwriting portion of your loan file are the steps needed to issue a loan commitment. The processors and underwriters will ensure that all information is verified and complies with regulations. These documents are reviewed and approved by an underwriter, who is ultimately responsible for the final decision on your loan and issuing the commitment. He or she will often request additional information/documents as conditions to the approval. Your loan officer and processor will work with you to collect these items so that they can be returned to the underwriter, and a final approval can be issued.
- Closing disclosure: Once the final approval is issued, your loan will move into closing. The most important part of the closing process is to ensure that your “closing disclosure” is signed three business days before closing. The closing disclosure shows all the finals number for your transaction. This three-day time frame is a requirement of all lenders by the Federal Government and if not met, your closing date must be adjusted accordingly. Both the title company and lender reconcile the final cash to close number and must balance the bottom line prior to settlement. We are both responsible for telling the client exactly how much money is needed at settlement. It is important to emphasize that the title company plays a large role in settling the overall cost of the transaction. Your loan officer should reach out to you in advance of receiving the closing disclosure to make you aware that it’s on the way and remind you to sign it within the appropriate time frame.
We have taken you through a great portion of the mortgage process once a contract is ratified. There are some important fundamental principles that if followed, will contribute to a smooth transaction for all parties involved.
1. Responsiveness of all parties, buyer included! When you receive a request from your lender (or agent), time is of the essence. Responsiveness contributes directly to everyone’s ability to move the ball down the field.
2. Keep your loan officer updated on any changes, preferably before the changes occur. Even if you are not sure that they are important or affect your loan. Examples of these can include; change in address, job, income, bonuses, and new credit accounts. Make your lender aware of any monies being transferred for your down payment so that they advise the appropriate way to document these funds.
3. Ask questions! If you see anything that you do not understand, please ask. Your loan officer does not want you to get to closing without fully understanding the process. Having this full understanding, will help to ensure that you enjoy the moment you become a home owner!