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How to Get a Loan Fully Approved: The Mortgage Loan Approval Process

Mortgage Loan Approval Process

This article continues a series on getting a home loan. Read Part 1: How to Get Pre-Approved.

What must be done to get a loan fully approved? Following pre-approval, your loan representative will instruct you to provide the required supporting documents. The loan representative will then submit your loan application, along with the documents, to the underwriter. Soon thereafter, the underwriter will return one of four possible decisions about your application: approval, approved with conditions, suspended (more documentation required before a decision can be rendered), or denied.

In most cases, an approved loan application will be “approved with conditions.” Satisfying those conditions is the first of two critical tasks that you must complete in order to turn your “approval with conditions” into a full approval. The second critical task is to lock in your interest rate and loan terms.

Congratulations! You are cleared to make an offer on a house with full confidence that you will be able to close the deal. Nevertheless, it’s still up to you to do everything you can in order to ensure that your closing goes smoothly.

Remember, changes to your credit reports and credit scores can derail the process at any time. The lender may check your credit hours before your loan is finalized. It is wise to stay on top of your credit by at least monitoring one of your credit scores for free. You may also want to spring for three-bureau credit monitoring to catch any major changes as quickly as possible.

Satisfy the Underwriter’s Checklist of Borrower Conditions

When your application is approved it’s important to check the underwriter’s checklist of borrower conditions. This list will specify everything that you need to do in order to ensure that their loan will be approved for closing. The conditions often include requests for alternative and supplementary documentation, explanation and correction of anomalies, and verifications and attestations.

Lock in Your Interest Rate and Loan Terms

Once you know when your transaction is going to close, you should consider locking in the rate. Locking in commits your lender to fund your loan at the specified rate. It takes the risk of interest rate fluctuations out of the picture.

Why are the Borrower Conditions and Locking in so Critically Important?

Borrower Conditions

Each phase of the loan application process involves a number of steps the loan officer and borrower have to execute carefully in order to ensure that the borrowers get the best loan available and their purchase comes to a smooth and efficient close. Consider the following example of what can go wrong.

Elizabeth had received loan approval and the lender had sent loan documents to the closing agent. She had signed them and put her down payment into escrow, and was expecting the loan to fund, but the lender had refused to fund the loan, stating that she had not satisfied certain conditions. What she had not been shown were the lender’s Specific Closing Instruction, a sheet that tells the closing agent what they must do to complete the transaction. Most of these items are perfunctory but a loan representative’s foremost job at this point is to assure that someone is taking care of each of these items.

In this instance, the closing agent did not bring these instructions to the attention of the borrower at the time documents were signed, and it sounded as if the loan representative stopped doing his job. While common sense would tell you that it was in their best interest to get your loan funded, it is still your loan and your responsibility to assure success.

Locking in Your Interest Rate and Loan Terms

Locking in your interest rate and loan terms sets your whole application in stone. Lock-ins protect you against increases while your application is processed. However, a locked-in rate may prevent you from taking advantage of price decreases during this period.

How Should You Satisfy Borrower Conditions and Lock In?

When a lender issues its approval letter there are almost always some conditions, which frequently include the following:

Alternative and Supplementary Documentation

  • If you lack credit histories or scores, service accounts–such as utilities, cable, or telephone–are acceptable.
  • If you are self-employed or have rental or other unconventional income, you may need profit and loss statements prepared by a licensed Certified Public Accountant.
  • You must supply updated account statements immediately prior to closing.

Explanation and Correction of Anomalies

  • You must explain or correct inconsistencies in credit reports.
  • You may be asked to get official explanation of wages, tax statements, pay stubs, etc. from payroll departments or authorities.

Verifications and Attestations

You may be asked for verifications of…

  • employment and income
  • housing or rental history
  • gift funds (by means of a sworn letter from the donor foregoing repayment)

How to Satisfy the Borrower Conditions

As a preliminary step, you should get pre-approved by a reliable lender before searching for a home. When your lender tells you the loan has been approved, you should demand to see the approval sheet and work with your loan rep to assure that you are complying with all requirements. Later, when you sign your loan documents, get a copy of the list of all remaining conditions from the closing agent and make sure someone is handling the items listed so your loan funds come in on time. It’s especially important to leave plenty of time for items to be corrected on your credit report, and for any legal issues to be documented and settled by the relevant authorities. Otherwise, it’s entirely possible for the sales contract or loan approval to expire before all of the conditions are met. Make sure any errors on your credit report have been corrected, since the report is always pulled again just prior to closing.

How to Lock in Your Interest Rate and Loan Terms

Once an appraisal report has been filed with your lender, it may be time to consider locking in your interest rate and terms. First, get your lender’s current rate sheet and compare it with the one you kept from when you were pre-approved. This will show you what has happened to the market since you began the process. Then you can sit down with your loan officer and review the rate versus-fee alternatives.

You will also see that every program offers lock periods of 15, 30, 45, and say you have a 45-day escrow. That means you can lock immediately and ensure your rate so long as you close within that 45-day period. You could wait 15 days and lock for 30 days at a slightly cheaper price, but that good rate you got 15 days before may not be available now. Interest rates can change a lot in 15 days. That’s why it generally makes sense to lock in right away and avoid the risk of having increased interest rates blow your deal.

Let’s say you can lock in for 6% and 1 point today but you choose not to do that. If the market moves against you and 15 days later the rate is 6.375%, you are going to have to pay $375 more per year for every $100,000 you borrowed.

Once you have locked your rate it is extremely important that you get a copy of the lock confirmation from your lender. This confirmation is not customarily sent to borrowers, but it is the only way to verify all sources of origination fees, borrower names, loan terms, the interest rate, and the date and length of lock. With the lock confirmation you can verify that your loan representative has honored the agreement you were originally offered. Without it, the loan representative could charge you points “to lower the rate” but leave it high enough to get undisclosed points from the lender, too. A loan rep might even charge you to lock in but not do so, and keep the fee if rates hold.

To learn more about mortgages and the home-buying and financing process, read more from our experts by visiting our Mortgage Learning Center.


Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

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  • Orissa Parker

    I lost my house due to a separation and divorce, he stop paying and the house foreclosure, I been in foreclosure for three years, how do I started over??

    • http://www.Credit.com/ Gerri Detweiler

      Orissa, I would strongly encourage you to start by meeting with a consumer bankruptcy attorney. You need to find out whether the foreclosure is completed and whether you may still be held legally liable for any debt remaining after the foreclosure. You also need to check your credit reports to see the dates listed as they will affect when you are able to buy a home again. Here’s how to get your free annual credit reports.

      • Orissa Parker

        Ok thank you I will check in nto that

  • http://www.credit.com/ Credit.com Credit Experts

    Elle —
    Talk to a mortgage lender to see where you stand. It’s good that both of you have been keeping tabs on your credit scores. If you applied for a mortgage, it would generate a “hard inquiry,” which causes a small, temporary drop in your score (the same thing happens if you apply for a credit card). Whether the application is accepted or rejected is not reported, so a rejection would not hurt your score.

  • Sarah Renee Stewart

    Are mortgage company is saying my bf and I are common law. We don’t understand how but ok whatever. We have turned everything in. But there saying I have a judgement on my credit report. Pls remember my name is not on this loan. So they said it had to be paid before we could close. I have called everyone. Even the people that filed the claim they have no records of me having a judgement. No one does. I can’t pay I judgement no one can find. I did a dispute. What should I do so we can close.

    • http://www.Credit.com/ Gerri Detweiler

      I am completely mystified. However, presumably your loan officer wants you to close so he or she can also get paid. Have you asked them to help you resolve this?

      • Sarah Renee Stewart

        Yes they just say pay it. We’ll I can’t so not sure what else to do. It’s been horrible with these people. They keep missing things and messig up on things.

        • http://www.Credit.com/ Gerri Detweiler

          Ugh…as you can imagine with this kind of situation it’s hard for me to say what to do because I am not even sure what’s going on.

          You may need to talk to the court where this judgment is supposedly filed. It is possible there is a clerical error or that they have mixed you up with someone else. This article may help: I Found a Judgment on My Credit Report. Now What?

    • ScottSheldonLoans

      I would offer to settle it. Mortgage company probably wants the debt zeroed out. They probably don’t care how much you paid, so long as the debt is closed out with no balance. Why is this considered his debt if you are not married?

      • Sarah Renee Stewart

        There saying were common law. Don’t see how. Now there saying not only do I have to pay it but it has to clear the courts as we’ll.

  • ScottSheldonLoans

    I would always get a second opinion especially if your desire is to work with a credit union. I have found credit unions are great for niche programs only.

  • ScottSheldonLoans

    Jennifer,
    Can you more details? This too broad of problem to solve with knowing more info.

    • Jennifer Bennett

      Ok so because I haven’t paid on a bill for 12 months it doesn’t meet FHA requirements, eventhough 16 bi-weekly payments have been paid on time!!

  • Saberron

    Sounds like the bank was waiting for the supreme court ruling regarding extinguishing mortgage debt in chapter 7. SC ruled in Bank of America’s favor just a day or two ago in that the debt can’t be included in the bk .

  • hloevering

    my question is I have been working on paying off my past debts now with the help of a debt management program and its looking like we might have to find our own home faster than I initially planned and I am on social security disability I wont be able to rent anywhere due to credit and my fiancé’s credit and the fact that we have a dog that helps me with my health (no she is not certified as a service dog) would I be able to get a mortgage as long as I would have the help with my fiancé with bills etc… and have the payments come out of my check like my debt management payments its kind of getting close to an emergency setting

    • http://www.credit.com/ Credit.com Credit Experts

      That’s a better question for your credit counselor, who should have far more information about your credit status. We encourage you to ask.

  • Jen Schwarz

    Hi, my husband and I are in escrow. We obtained a preapproval before putting an offer on the house. Now, the lender is telling us that there is a collection action shown in one 1 of the 3 credit bureaus in 2009 in that I am completely unaware of. This has been holding up the final approval. What can I do to remove this? I am disputing the amount since I paid off all my student loans around that time and have no idea what this collection action is.

    • http://www.Credit.com/ Gerri Detweiler

      Simply disputing it may not be the solution as the following article explains. You need to find out what it is for and whether it is valid. Your loan officer should assist you if you aren’t sure how to proceed. Please read: How a Credit Report Dispute Could Stop You From Buying a Home

    • ScottSheldonLoans

      You definitely do not want to dispute this account. Your lender will not allow the loan to close if it is in dispute. You have if you choices. Try to qualify with the loan as is, or put more money down, reduce the interest rate, or whatever other advice your loan professional can give you leaving the obligation alone making no changes. If those options don’t work, the next step is to attack the obligation directly in one of two ways. Either you pay the account off in full or you do what’s more common where you negotiate a settlement with that creditor for pennies on the dollar of the original balance so the account is specifically zeroed out at closing. For example let’s say you owe $5000 on this whole collection account, and they agreed to zero the balance out, in exchange for $1000. The obligation must have a zero balance associated with it to close your mortgage. It’s not about how much you pay the creditor it’s about the fact the lender need the account zeroed out so however you can work that directly with the creditor, do it. The older the account is the more likely they are to accept something rather than nothing. Hope this helps and good luck with your house purchase!!

  • Orlando Artist

    Not true, credit unions charge u a lot up front, to compare: Fairwinds offered me %3 down payment and 4.25% rate total cost with down payment and closing = $20,000 (Remember with 3% down you PMI is much more expensive than 5% down)
    Another lender offered me 5% down, 4.25% rate total cost including the down payment was $20,000
    In those 2 scenarios: Credit Union monthly payment was $1730/m
    The one with the broker the monthly payment was $1565/m for the same house same everything.
    With the same $20,000 upfront cash I get 5% vs 3% equity and I get lower monthly payment, the rate is the same for both.

  • Orlando Artist

    yep

  • kickrent

    I want to buy a home as the rent in my area is ridiculously high. I am presently self-employed with no work history for over two years as I was living off my inheritance. The job market has been poor here. However, I have excellent credit history and no debts. Can I still be approved for a home loan and how would I go about it in my unique circumstances? I still have some inheritance left.

    • ScottSheldonLoans

      Your inheritance would need to be converted to income as it sounds like you just became self-employed? after speaking with your mortgage company to see what income options are available, I would take that information and speak with a qualified financial advisor who can advise you on the various forms of income you can create with your inheritance. This of course is assuming you have inheritance funds left over. Alternatively if either one of those are not an option you could potentially still buy a home if you had a cosigner, or became employed under it W-2. Lenders want 2years on self-employed income validated with 1040s.

  • Elsie Dodson

    I am wanting to buy asmall house that is wethin my price range. How will these factors effect my chances of getting a loan. I am widow, 70yrs old and living on social security and small pension. My yearly income net, is 35,000. credit score 0f 675-680 fico. could I get a FHA loan for improvements if the house needed it. I realize I would only qualify for an older home that would have wear and tear.

    • http://blog.credit.com/ Kali Geldis

      Hi Elsie —

      There are FHA 203(k) loans that are specifically designed to allow homeowners to rehab their house and do repairs after the purchase. Your best bet is to talk to a local mortgage lender who specializes in these types of loans. you can find one near you using this search tool from the HUD.gov:

      http://www.hud.gov/ll/code/llslcrit.cfm

      Keep in mind that most lenders require a decent credit score, so you may want to take a look at your credit reports and see what you can do to raise your credit a few points to help qualify. Your FHA lender can help you figure out what credit score is required.


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