7-20-18: What is the process for our mortgage application when we purchase a home?
Question of the week: What is the process for our mortgage application when we purchase a home?
Answer: Mortgage application packages are very deadline oriented. For a purchase this is because we have a closing date that is agreed upon by the buyer and seller, for a refinance the deadline is when the rate lock expires.
Here is a not so detailed look at the timeline on a purchase, much of it is the same as with a refinance.
Ideally the first step in your mortgage process when purchasing a home is we have detailed conversations and review your records to determine your ability to qualify for a mortgage to purchase at a certain price with a certain amount down. This is the pre-qualification, or pre-approval, stage. We review your income by looking at paystubs and tax documents. We obtain a credit report to see you credit score and confirm your balances and payments on outstanding credit. We look at your asset statements so we know how much we have in funds for down payment, closing costs and reserves if necessary. And we discuss your objective, long term plans and other factors that may influence the amount and type of mortgage that would be ideal for you and your family. This step can take an hour or several days depending on the complexity of your finances or issues we need to address. Next step: Look at houses and write offers.
You have your offer accepted and we begin the formal application process. At this stage we complete any information for the loan application so you can sign the application and disclosures. We collect necessary documents supporting income, credit, obligations, funds being used for closing and other items we discuss as necessary. Once we have the signed application and necessary items we lock in your loan rate for a specified period of time that matches your escrow time frame but in 15 day increments (i.e. lock for 30 or 45 days). As well, we communicate with both your agent and the seller’s agent to establish clear lines of communication, confirm who will be the person for the appraiser to contact to set up inspection of the property. We also initiate contact with the escrow officer to make sure s/he and our staff have each other’s contact information as they will be sending a lot of information and documents back and forth. Finally in this stage, we order the appraisal. This stage is generally one to two days depending on how quickly you get the required items to us. Next step: Processing.
During the processing period our staff is collecting the necessary information to ensure underwriting will approve your loan as applied for. All your information will be reviewed and verified. During the review our staff will ask questions that may need additional information to support answers: what is this large deposit, there are some statements in the tax return that indicate another business or sources of income to verify. At this time they are also collecting necessary documents for the approval. The appraisal report will be completed and reviewed. We will obtain a copy of the preliminary title report on the property. Escrow will send us the escrow instructions which detail the agreement between you and the seller. We will communicate with your insurance company to ensure there will be sufficient coverage of the property to protect the lender should there be fire or other major damage. Any loose ends or issues that may arise as all this information is collected and reviewed are addressed and the necessary parties are contacted and additional information requested to cover the issue so underwriting will approve the file. The timing for this stage depends on the how quickly others respond to our request for items. If the listing agent puts off the appraisal inspection for a week or ten days that slows us down. If we request additional statements on an account, tax returns on a business entity, source of funds, this can slow us down if the information is not forthcoming. If everything is into us in a very timely manner this step should be about 10 business days. Next step: Underwriting.
The mortgage application package, at this point several inches thick (our record is over 1 foot high with clients who had multiple companies and properties resulting in about ten tax returns for various entities). All the documentation, disclosures, reports are then sent to the underwriting department. Once received it is assigned to an underwriter who reviews the file and issues an approval, usually “conditional” approval as the underwriter generally asks for items to complete the file, an updated paystub, a letter of explanation for some issue, clarification on the appraisal, support for continuing income from commissions, overtime or bonus, a myriad of items may come up. The underwriting period is generally two to three business days. Depending on the additional conditions requested the time frame from initial approval to final approval can be as short as 3 to 4 days or considerably longer depending on conditions requested and ability to provide them. Next step: Loan Docs.
Once we get the approval and are moving into the final stages of the transaction we will issue to you the Closing Disclosure (or CD). We usually like to issue this via DocuSign as when you acknowledge the CD will start a timer on when you can sign loan documents, which is three days not counting Sundays and holidays. So if we issue the CD on Friday and you open the link and “sign” on Sunday you cannot sign loan documents until Wednesday, if you had signed on Friday you could sign docs on Tuesday. Does one day make a difference? Next step: Funding.
The loan documents will be sent to escrow and available for you to sign the day you are eligible to sign after the CD rescission period is up. Escrow will contact you to set up a time to sign in their office, or if more convenient set up a mobile notary. At this time we will know the amount of funds needed to complete the closing of the transaction. Escrow does not take personal checks, the funds for closing need to be either via a cashier’s check or a wire (see important note below). After you sign loan docs and your funds are in escrow we fund the loan. If we have the loan docs in our office in the morning and all is in order we can fund the day we get the loan docs, the time from doc signing to funding can be as short as one day. Next step: Closing.
Closing occurs when the deeds are recorded by the title company at the county recorder where the property is located. The grant deed conveying title from the seller to you is recorded first, then the trust deed securing the property as collateral for the mortgage is recorded. Depending on what county you live in recording happens either the same day (Orange County is a same day recording county), or it occurs the next day (Los Angeles County will not allow funding and recording on the same day). This is where that one day difference on the CD can impact closing. Since we cannot fund and record on the same day in some counties we very rarely fund a loan in those counties on a Friday for many reasons, for one you are paying interest for two additional days on a property you do not own. Second, if something happens to the property, or the current owner, we have two loans on the property and two insurance policies (your policy must be in effect before we can fund). As you can imagine this creates several issues that need to be unwound. While something could happen to the property between funding on Wednesday and recording on Thursday, it is less likely than something happening between funding Friday and recording Monday. So the closing step is either same day or next day. Next step: Move In!
NOTE, VERY IMPORTANT! There has been a wire fraud scheme occurring with real estate closings. The scam works like this. You are in escrow to purchase a property and you receive an email from what looks like your escrow officer. It is instructing you to wire your funds for closing and provides the necessary information. The email has the escrow company’s email address, signature on the email looks the same and by all accounts is from the escrow company. This email will come near closing but before funds are usually asked for from escrow. What has occurred is that at some point your email was hacked, it could have been last month or last year or even longer ago. The hackers run your emails through their filters which are set to look for keywords in your emails, such as “escrow,” “mortgage,” “purchase home,” etc. When any keyword occurs the account is monitored to determine is you are engaging in a real estate transaction. The next step is to determine who is who in the communications and then spoof the email account for the closing agent, i.e. escrow, and send you the email requesting you wire the funds into the scammers account. Do not reply to the email, do not send the funds to the account listed in the email and do not call the number listed in the email as chances are it is not the escrow company you are using. Before sending funds call the escrow officer from the number printed on the escrow instructions you have, or by getting the number from us or your agent, and verify the amount of funds required and ask them to send you an email with the wire instructions, then call back to verify the information is correct.
As you can see the time frame for closing an escrow on a purchase can be 30 days or a little less, or longer depending on everyone having the information needed and requested and providing it in a very timely fashion. Closing times are dependent on many actors all performing together and when needed.
Have a question? Ask me!
Consumers appear to be happy. Retail sales for June were reported on Monday and showed a 0.5% increase from the prior month. This is good news, what was pretty incredible news was that May retail sales were revised upward 0.5% for a total increase of 1.3% from April, that is a very rare number to reach. Auto sales had strong months in May and June, up almost 1% each month, and restaurants also showed strong increases, up 1.5% in May and 2.6% in June. This news indicates consumers willing to increase their discretionary spending, what’s more discretionary than eating out instead of at home? The news is somewhat negative for rates as higher consumer spending supports stronger economic growth, which leads to higher interest rates.
Historic is the word to describe yesterday’s jobless claims report. Last week 207,000 initial jobless claims were filed, the lowest weekly amount since December 1969. Continuing jobless claims, as sign of length of unemployment, are at 1.738 million which is at a level last seen in the early 1970s. The news is interest rate unfriendly as a tight labor market can, should, lead to some wage inflation which will lead to higher interest rates.
Rates for Friday July 20, 2018: The economic data suggests rates should be higher than they are, especially with the Fed selling off billions of dollars of mortgages and bonds every month. However investors, who ultimately control interest rates, do not look at just American economic data when making their decisions on what to buy and sell for long range profits, the also look at foreign economies, and as importantly domestic and international politics. It is the latter that has investors holding onto their fixed return investments (i.e. mortgages and bonds) as a hedge against some major event that could trigger a run on bonds and therefore lower rates. It is a strange set of market circumstances we have been experiencing. Thankfully we have benefited from flat rates for the past two months.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:
30 year conforming 4.375% Flat
30 year high-balance conforming 4.500% Flat
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.
We have been down to one kid in the house since early in the month as the younger one is spending her annual month in Minnesota at camp, unfortunately for the older one she is basically termed out this year and must spend the summer at home. It has been nice to have her home with us since she leaves in 4-5 weeks to Boston for college and then we will be a one kid home for a few years before the younger ones decides to leave as well. We are in that period when our oldest is still our daughter and little girl but our relationship is slowly transitioning to daughter and adult. Certainly a unique summer for our family, and one that we will fondly remember for years to come. I hope you and your family are having a great, and unique, summer as well!
Have a great week,
Dennis
