The mortgage loan process can be a mystery for many first-time buyers, but it doesn’t have to be.
Take control of your experience by learning how the process works so you can ensure it flows as smoothly as possible.
What's in this article?
Let’s take a look at all the steps involved in loan processing, from pre-approval to closing.
What are the six steps in the mortgage loan process?
Mortgage loan processing can be broken down into at least six steps, including:
- Pre-approval
- Loan application
- Loan processing
- Property appraisal
- Underwriting
- Closing
Each lender may approach the process a bit differently, depending on the specific programs they offer to borrowers.
For example, Compass Mortgage offers Get Committed® (a loan commitment program) and appraisal gap coverage, both of which offer borrowers additional benefits and protections during the home-buying process.
Let’s take an in-depth look at each step so you can move through the loan process with confidence.
1. Pre-approval
The first step in the mortgage process is pre-approval.
Mortgage pre-approval gives you insight into how much you can afford so you can shop for homes within your budget.
It also proves to real estate agents and sellers that you are serious about purchasing a home—and that you have a letter from your lender to prove it.
To get pre-approved, you’ll submit the following information to a lender:
- Social security number
- Income
- Employment
- Assets
Your lender will use your SSN to run a credit check and will verify your income and employment information.
They also will calculate your debt-to-income ratio (DTI) and loan-to-value ratio (LTV) to determine the loan type, terms and amount for which you are eligible.
Remember that pre-approval is different from pre-qualification.
Loan pre-qualification is an estimate of what you can afford, but your information isn’t verified. Pre-qualification doesn’t hold much weight with sellers or real estate agents.
Once you are pre-approved, however, you will receive a pre-approval letter that you can use when you make an offer on a home.
Some lenders can offer more to you than a standard pre-approval, which will increase your chances of standing out from the buying competition.
Compass Mortgage’s Get Committed® program provides a fully underwritten loan commitment and locks in your interest rate.
A loan commitment essentially has the power of a cash offer, because you’re fully approved financially.
2. Loan application
Once you’ve provided the required documentation to your lender for pre-approval and your information is verified, you will complete your loan application.
If you use the Get Committed® program, many of the application details will already be completed.
You will either complete the application in person with your lender or online.
A loan application includes the following information:
- Loan type and terms
- Property address and loan purpose
- Borrower address and marital status
- Employment details
- Monthly income and expenses
- Assets and debts
- Purchase price
- Borrower declarations, including bankruptcies or lawsuits
- Signatures
Loan pre-approval is defined a bit differently by each mortgage lender. For some, you just hand over some documentation, they perform a credit check and you receive a letter.
For others, including Compass Mortgage, pre-approval essentially includes most of the loan application and verification of your employment, income and debt.
Once you’ve completed these steps, Compass Mortgage can issue you a loan commitment that will definitely be to your advantage when you make an offer.
A loan commitment takes pre-approval a step further because you have been fully approved financially. The only thing left to clear at this point is the property appraisal.
3. Submit file to processing
After you submit your loan application, a processor will review it to make sure it is complete and accurate.
Loan processors perform the following steps:
- Evaluate your bank deposits and check for any problems with your credit
- Provide verification for employment, income and assets, and if you have limited credit history, help you consider non-traditional credit sources possibly available to you
- Look for errors, discrepancies and anything that may need clarification for your loan to get approved
- Assist you in compiling documentation and explanations for any errors or discrepancies
- Order a title search and your tax transcripts
Your lender and loan processor will then compile your application and supporting documents and send them to the underwriter.
4. Order appraisal
During or after loan processing, your lender will order an appraisal from a licensed, unbiased appraiser.
The appraiser’s job is to evaluate the home and determine whether the listed home price is fair.
The appraise will evaluate the following:
- Recent sales of comparable properties in the area
- Current market trends
- Home details, including the square footage, condition, age and features
An appraisal ensures that lenders aren’t lending more money than the property is worth.
If the home’s fair market value meets or exceeds the contract price, the deal can proceed as planned.
If it comes back lower, it can delay your home purchase.
Fortunately, some lenders offer appraisal gap coverage to protect the borrower.
Compass Mortgage can write an appraisal gap policy into your purchase contract. The policy will allow the borrower to state that they will pay the difference between the contract price and appraised value up to a certain amount.
The buyer and seller can then agree on an acceptable amount instead of allowing the entire deal to fall through.
5. Underwriting
The loan underwriter’s job is to scrutinize the borrower’s application and supporting documents and determine final approval.
The underwriter will evaluate your income, debts and credit to determine whether you can make your monthly payments.
They also will read the appraisal to determine whether the home’s value and purchase price are within the required limits.
The loan officer and processor should have answered most concerns and provided explanations for any errors or discrepancies to the best of their abilities, but the underwriter may still have questions.
Your loan officer will reach out to you if there is any additional documentation they need, so be sure to stay in close contact during this period to ensure the loan processing stays on track.
6. Closing
If the underwriter approves your loan, you will be cleared to close!
Closing is the last piece in the loan processing puzzle.
Three days before closing, you will receive a Closing Disclosure with the final details of your loan.
On your closing date, you’ll have several papers to sign. Once they’re signed, you receive the keys to your new home.
Feel free to ask as many questions as you need throughout the closing process to make sure you fully understand what’s going on and what you are signing.
Ready To Take Your Next Step?
How do I get the loan process started?
The first step in the loan process is to connect with a trustworthy and experienced team of loan officers.
The LO will be by your side throughout the entire process, so it’s important to choose someone with whom you feel comfortable.
The loan officers at Compass Mortgage treat our borrowers like family. We value your financing needs and promise to be your partner and advocate throughout every step.
We are proud to offer our borrowers more through our Get Committed® loan commitment program and appraisal gap coverage.
Apply now to get started. Together, we’ll find the most affordable loan for your home.