What you need to know: Anatomy of a Mortgage

Many things seem mysterious and intimidating when you don’t understand them, and mortgages are in that group – especially because major reforms were enacted in 2010. Loans are not tougher to get, but there are new regulations that might affect you.
That’s why I’ve prepared this generalized “Anatomy of a Mortgage.” It de-mystifies each step of the process, resulting in more-confident and more-engaged first-time borrowers/buyers. (If you’ve borrowed before, please read it anyway – a little “refresher” can be a good thing!)

Application/Pre-Qualification:
You should take this step even before you call a realtor or review any homes, to ensure that a mortgage is obtainable. Also to be aware of potential monthly payments, loan types, and the property you qualify for.

After you fill out your mortgage application, a potential lender will review your credit history, as well as income documentation, bank statements, tax returns and other relevant information. If everything is in order, you’ll usually receive a pre-qualification letter in about 24 hours.

That letter will guide the realtor when you begin actually shopping for a home.

Loan Submission:
When you’ve secured a contract to purchase a home, your loan enters the processing stage. You’ll sign off on specific loan disclosures; an appraisal of the property’s value will take place; and a loan processor will prepare the paperwork for the underwriting phase. In some cases, the loan processor may request updated documentation, such as current pay stubs.

Underwriting:
The mortgage underwriter reviews the borrower’s complete documentation package to ensure its integrity; reviews the appraisal; and determines that the borrower’s income and assets are consistent with the loan program’s guidelines. (Again, you might be required to furnish additional documents.)

Closing:
Finally, you’re ready to complete your real estate transaction. A mortgage company “closer” will prepare the closing documents with the title company; balance and finalize the closing documents, and issue them for review by all parties. At this point, the borrower can either get funds to close, or know how much money they are netting (if a refinance).

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