The Loan Process Explained

(If you have recently taken out a mortgage, or are planning on financing a home purchase in the near future, then you may find it helpful to learn how the actual loan process works. )

There are many steps involved in this intricate process from the time you first start looking for a mortgage to the time the loan actually closes.

An article posted on financialone.com, “A bird’s eye view of the loan cycle,” gives the reader a step-by-step look at the processes involved from the beginning to the end of taking out a mortgage.

“The process of making a mortgage loan has five distinct steps called the loan cycle. The loan cycle is comprised of the steps taken to make and maintain a loan. The mortgage loan cycle begins when a prospective borrower inquires about a residential mortgage loan, and it ends when the borrower pays off the loan.”

The five major steps of the loan cycle are; the application, loan processing, loan underwriting, loan closing and loan servicing.

The application is the part that the borrower is most involved in since this is where they give all of their personal information and documents.

The application process is all of the information the lender needs to see if the borrower will or will not qualify for a mortgage. The application stage can also be used to pre-qualify or pre-approve a borrower for the loan in advance. “Pre-qualify applicant for the ability to repay a loan. Explain how a Purchase Contract works and how to fill in the appropriate information.”

After the application has been submitted and everything looks good, the loan goes into the processing stage. “Loan processing includes the collection and verification of detailed information on the borrower and on the real estate transaction itself. The lender is primarily interested in two things: the subject property, and your financial situation (which includes your credit history.) The process gathers the information to help determine your ability and your desire to repay the loan.”

This is a fairly long process where things such as verifications take place where the processors will verify your employment status, income, credit history etc.

After this, the loan moves into the underwriting stage. “The mortgage loan file next enters the underwriting stage. Loan underwriting is a process that determines whether the loan is a good risk for the lender. The main task during the underwriting stage is to avoid as many undue risks as possible.”

If everything has come along smoothly from this point, it is time for the loan to close and fund. All of the final details are worked out and the funds are disbursed for the loan. At this point, the loan transaction is complete, and the long journey of obtaining a mortgage is over (except for paying it back).

The service part of the loan is just all of the things that make sure the loan is repaid on time and not late; including billing statements.

This explanation of the loan process should hopefully help you to grasp a better understanding of what it takes to complete your transaction.

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