We’ll look at the mortgage approval process to help you better understand the process and how you can work to move it along
The Mortgage Approval Process
From preapproval and making an offer to underwriting and receiving final approval, there are many steps in the mortgage approval process. We’ll discuss each one.
Applying for Preapproval
Timeframe: Up to one week A mortgage preapproval is an important first step in buying a house as it gives you an idea of how much a lender is willing to let you borrow. “To obtain a preapproval, a borrower’s credit is checked and other documents are collected, so it may take roughly a week.” Andrina Valdes, COO of Cornerstone Home Lending in San Antonio, Texas, told The Balance by email. It may not always take that long; the time frame is usually dependent on the borrower’s situation. “A good lender should be able to get a buyer preapproval within the hour, so long as they have a relatively straightforward W-2 employee profile,” Sarah Alvarez, vice president at William Raveis Mortgage in New York City, told The Balance by email.
House-Hunting and Making an Offer
Timeframe: Varies The length of the house-hunting and offer phase is ultimately up to you. You may find your dream home on day one, or it may take you several weeks or months to determine which to make an offer on. Once you do, your agent will draft the offer and then you’ll sign it. The offer typically includes the target closing date, provisions for certain fees, a deadline for them to accept or counter your offer, and any contingencies. Sometimes, negotiations may arise that can extend the house-buying time frame. “Price is not the only thing open for negotiation; other possible items include repairs, inspection contingencies, fixtures, and the closing timeline,” Brad Jones, chief marketing officer of Newrez LLC and a licensed loan originator, told The Balance by email.
Offer Acceptance
Timeframe: Varies If the seller accepts your offer, the purchase and sale agreement are legally binding and the process will advance to property inspection and appraisal. The time frame for these steps depends on a lot of moving parts. For example, you’ll need to take into consideration how long it may take to get the home inspection appointment, and whether the inspection turns up any problems. The process could also be delayed if the appraised value is significantly different from the sales price.
Underwriting
Timeframe: 30-45 days The next step is the formal underwriting process. The type of mortgage loan is what will ultimately determine the documents you’ll need to provide. As a general rule, here’s what’s typically required:
Driver’s license or photo IDPay stubsSocial Security numberW-2 forms for the last two yearsProof of any additional incomeTax returnsRecent bank statements or proof of other assetsDetails on long-term debt (i.e., student loans, auto loans)
“If you own additional property, you’ll need to provide mortgage statements, property tax bills, a homeowners insurance declaration page, and any HOA or maintenance statements,” Alvarez said. At this stage, the underwriting process will also make sure your credit is supported by the documents you’ve supplied. And Alvarez says two things that borrowers don’t think of can slow down the process at this point. “First, if a buyer is paying for their car out of their business, they should ensure this comes out of a separate business account, otherwise underwriters will look at it as a liability against them,” Alvarez said. Second, if you own property with a family member or friend but you’re not making payments, the payments should not be coming out of a joint account that also has your name on it, she says. If it is, this joint mortgage will be seen as a liability. Underwriting is a crucial part of the mortgage approval process, so it’s best to have all of your ducks in a row to avoid delays. According to Karen A. Kostiw, an agent for Warburg Realty in New York, NY, the lender’s underwriters are reviewing loan applications for what’s known as the ‘Five C’s of Credit’: character, capacity, capital, collateral, and conditions. That’s why your employment, debt, and income are analyzed so carefully. “That information will allow underwriters to evaluate a borrower’s credit and character, as well as their credit score, which is generated by two or three credit bureaus, to ascertain a risk profile,” she told The Balance by email. “The capital of a borrower will demonstrate how much savings are available for hardships, and the collateral is reviewed by the underwriter upon receiving the appraisal report,” Kostiw said. Because it’s so important, the underwriting process can take anywhere from 20 to 45 days, said Jones. To avoid delays, he recommended promptly responding to any inquiries and avoiding major purchases or job changes during this time.
