The 6 Major Steps in Mortgage Loan Processing
The mortgage loan process may seem far from simple. There’s a lot that happens between your initial consultation to your loan being funded. But we’ll walk you through it—and with full transparency.
We’ll explain every step of home loan processing, including a breakdown of all associated costs and fees. You’ll know exactly what you need to submit and when, and exactly where your loan is throughout processing. And if you ever feel you’re lost— just contact us! We understand that choosing a mortgage is the biggest financial decision of your life, and we’re committed to making the process as seamless, friendly and financially valuable to you as possible.
Here are the six major milestones you'll reach during loan processing and what’s happening at each stage of the process.
Mortgage loan process
1. Loan is submitted to processing
The Mortgage Consultant collects and verifies all documents necessary to prepare the loan file for underwriting. These documents provide us with everything that we need to know about you (the borrower), and the property you are financing.
During processing, the Mortgage Consultant:
- Begins verifying assets, income and employment
- Orders a home appraisal to determine the value of the property (if/when needed)
- Runs various compliance and eligibility checks to ensure the process advances quickly and smoothly
Common documentation requested by underwriting includes:
- Evidence of Earnest Money
- Asset Verification
- Borrower Letter of Explanation (LOX)
- Gift Letter
- Copy of Note
- Source Large Deposits
- Verification of Employment (VOE)
- Fully Executed Sales Contract
Next step: Processing submits the loan file to underwriting for initial review and approval.
2. Loan is submitted to underwriting
The Underwriter begins the loan underwriting process, reviewing all documentation to determine whether you qualify for a mortgage. While the Loan Officer and Mortgage Consultant will do their best to submit a complete file during loan underwriting, an Underwriter may still have questions and/or require additional documentation to satisfy any conditions for a final approval.
What is underwriting?
Underwriting is the process financial institutions follow to determine the amount of risk that a prospective customer presents. In the case of mortgage companies, underwriters assess borrowers’ financials, debt obligations and employment record, as well as the property value, to decide how much risk lenders may be taking on by extending a home loan.
What do underwriters do?
Mortgage Underwriters review financial statements, employment records, housing market reports, home appraisal reports and other documents to check that two conditions are met:
- You can afford the home loan you’re applying for
- The home you’re buying provides sufficient collateral for the mortgage
Lenders want to be certain — or at least as certain as possible — that you’ll be able to repay your home loan. To that end, underwriters thoroughly analyze your finances and search for potential red flags. They’ll also verify the information provided in your loan application — employment status, income level, recurring debt, etc.
What do underwriters look at?
In addition to the loan file submitted by processing, the Underwriter examines:
- The completed appraisal report
- Credit report
- Pay stubs
- W-2 forms
- Bank statements
- Property tax statements
- Mortgage statements
- Homeowners insurance quote
- Existing debt
- Documentation of assets like stocks, bonds, securities and real estate holdings
How long does underwriting take?
Underwriters tend to be pretty thorough in their work, and they need ample time to conduct their reviews and assess the level of risk that each prospective borrower presents. As such, don’t be surprised if it takes several weeks to receive initial underwriting approval on your mortgage. Exact timelines will depend on the documentation you provide, the complexity of your financial circumstances and the underwriting team’s workload. The best thing you can do to help keep things moving along is to anticipate documentation needs and respond to requests as quickly as possible.
What happens after initial underwriting approval?
If the loan is approved, the borrower receives a list of conditions required to be met before receiving final approval and notification of Clear to Close.
Next step: The Loan Coordinator provides you with underwriting's preliminary decision on the loan.
3. Loan is conditionally approved
If your loan application presents an acceptable level of risk for the underwriting team, then they will grant you conditional loan approval. But you’re not in the clear just yet.
What does conditionally approved mean?
Conditionally approved meaning
A conditional loan approval means that the underwriter has signed off on the parameters of the loan and most of the documentation, but still needs a few more items before fully approving the borrower for the loan. At this stage in the mortgage process, your loan status is contingent on meeting those final conditions.
What conditions do you need to meet?
In most cases, mortgage teams want to see additional documentation to verify your finances and get a more complete picture of your financial behavior. These documents often overlap with the materials requested leading up to initial underwriting approval:
- Bank statements
- Tax forms
- Employment records
- Home appraisal report
- Pay stubs
- Outstanding loan or credit balances
- Homeowners insurance quote
Conditionally approved vs. other types of mortgage approval
Your home loan will likely receive various forms of approval throughout the mortgage process. Conditional approval is just one of several status changes you’ll probably see. How does it compare with other types of loan approval? Here’s where each one sits within the mortgage timeline:
- Prequalified: The lender has completed an initial evaluation of your finances, estimated what you can afford and thinks you’re likely eligible for your requested loan amount. It has not, however, verified your financial situation.
- Preapproved: The lender conducts a more thorough review of your finances, credit history and employment status. Often, this review is done with an Automated Underwriting System (AUS) and a more hands-on assessment is still required.
- Conditional approval: Underwriters have combed through your financial records and verified most, if not all, of the information provided in your loan application. They’ve also looked over the home appraisal to confirm the property’s value as collateral on the loan.
- Clear to close: The underwriting team has completely verified your eligibility qualifications and given your loan final approval. You’re now ready to close on your loan.
Can your loan be denied after conditional approval?
Conditional approval is just that: conditional. Until your loan is funded and you’ve closed on your mortgage, there’s always the chance that your loan could be rejected. The most common reasons your loan agreement might fall through after receiving conditional approval include:
- Loss of employment or income
- Drop in property value
- Issues with the home appraisal
- Taking on additional debt
- Title to the property is not clear
- Inability to document income or employment
These types of issues aren’t exactly common, but they could come up. Your best bet to get ahead of any loan application problems is to avoid extra debt (like a new car loan), maintain steady employment and keep a close eye on your streams of income.
How long does it take to get final approval after conditional approval?
The good news is that once your loan has been conditionally approved, you're basically in the home stretch. That being said, your lender will likely need another 1-2 weeks to finalize your home loan and move forward with your closing date.
What happens after underwriting is approved and conditions are met?
The Loan Coordinator contacts you to review the conditional approval mortgage and discuss any additional required items, as well as any ancillary documents that are needed to finalize the loan. This documentation can include:
- The completed appraisal (or updates to the existing report)
- Additional verifications
- Standard in-house items required for closing (purchase agreement, deed, mortgage note, etc.)
Steps After Conditional Approval
- Clear to Close
Once all conditions have been met, the Loan Coordinator will send the file back to the Underwriter for a final review and approval.
Next step: After the loan is approved, a Mortgage Professional will schedule the closing.
4. Loan is Clear to Close
What is clear to close?
"Clear to Close" means the Underwriter has signed-off on all documents and issued a final approval. You meet all of your lenders’ requirements to qualify for a mortgage, and your mortgage team has been given the green light to move forward with your home loan.
When you reach this stage of the mortgage process, your lender will send you a clear to close letter along with a copy of the Closing Disclosure (CD). The CD is the standardized document that details the finalized terms for the loan, including a breakdown of all closing costs and fees. You won’t receive the Closing Disclosure until you’ve been cleared to close.
You’re in the home stretch now, but there’s still work to be done behind the scenes: The lender will schedule your closing and review the CD to ensure every cost and contingency has been incorporated before heading to the closing table.
Clear to close timeline
How many days before closing do you receive mortgage approval? Clear to close timelines vary by lender and even underwriting team. There are also unique conditions that could extend the clear to close timeline, like irregularities in a loan application or spikes in mortgage team workloads. When lending activity is high — in other words, when a lot of people are applying for mortgages and refis — it may take underwriters more time to process loans.
How long does clear to close take?
Waiting on clear to close can be agonizing for a homebuyer, which is why we speed up this process as much as possible to get you to the closing table without delay. Our goal is to have you clear to close in as little as 10 days — and the clock starts running as soon as we receive your loan application.
How long from clear to close is closing?
Once your loan is approved and cleared to close, the mortgage team will have 3 days to finalize all of your closing documents so you’re ready to complete the transaction. So, barring any unforeseen complications, you’ll be sitting at the closing table and signing the property deed on your new home a mere 72 hours from the time you receive your CD.
What happens after clear to close?
In most cases, there’s nothing left to do on your end as a homebuyer but wait for your closing date to come around. In the meantime, your lender’s underwriting team will take care of some final housekeeping tasks, like double-checking your credit report, employment status and monthly income. But don’t worry too much about these last-minute financial reviews; lenders just want to be sure there are no unwelcome surprises in the 11th hour of the closing process.
If there are some unexpected changes to your finances, however, they could jeopardize your loan application status. But those are rare cases, reserved for major events like losing a job or taking on large amounts of extra debt (financing a new car, for instance). As long as you’ve held down steady employment and avoided taking out any large loans during the underwriting process, you should be just fine.
Next step: Closing the mortgage.
Closing processes vary slightly depending on the type of transaction, as well as local, state and municipal laws.
The type of transaction—purchase or refinance—determines who can provide you with accurate final numbers.
- Purchase: You can receive estimated figures from your Mortgage Professional, but they'll need to speak with your local title company or real estate attorney for a final amount.
- Refinance: In most states, you won't be required to use an attorney to close. In that case, you should speak with your Mortgage Professional for the bottom-line.
What to bring to the closing:
- Photo identification
- Personal check or bank check from an approved account to cover the closing costs and down payment (unless the money was wired). NOTE: Your mortgage team will advise the best way to transfer funds for your closing.
Whether purchasing or refinancing, prepare to sign a lot of documents!
- Purchase: While the process varies by state, typically a professional explains every document and notes where to sign. The lender’s wire may need to clear before you're handed the house keys and provided with copies of all the documents.
- Refinance: Depending on local laws, an agent from the title company will explain each document to be signed. If refinancing a primary residence, the loan will fund once the 3-day right of rescission has expired (on the fourth day). Once the rescission period has expired, the loan can no longer be cancelled. If refinancing an investment property or second home, the loan will fund on the same day.
Next step: Funding the mortgage.
6. Loan has been funded
The final step on the loan process is now complete: Your loan has been funded!
At this time, all documentation is complete and the funds for the loan have been disbursed to the seller (purchase) or to the payoff of the prior loan (refinance).
You should receive your first payment statement at the closing. This should be used to make the first and possibly second loan payment.
- If you did not receive the statement or cannot find it, you can reach out to your Mortgage Professional for a copy
Final step: You'll receive correspondence in the mail from the final servicer (the company to which you will make all subsequent payments). This information details where to make future payments and how to set up auto-pay if desired.
Hopefully, this breakdown helps you understand the inner-workings of the mortgage process. Don’t hesitate to contact us with your specific questions along the way. We’re here to simplify a complex process and to provide the kind of personal service and advice you deserve. We’re here to get you home.
*Proper Rate cannot guarantee that an applicant will be approved or that a closing can occur within a specific timeframe. All dates are estimates and will vary based on all involved parties level of participation at any stage of the loan process.