When you apply for a home loan, the guarantor will review your file in order to make a lending decision.
They can approve your loan, deny your loan, or possibly put your loan on hold pending additional information.
The two most common outcomes are approval and denial, but even an approved loan is usually “conditional.”
This means that it is actually a conditional approval that requires certain requirements to be met before you can be issued a final approval.
Only at this point can you sign the loan documents and finally fund your loan.
Not all mortgage approvals are created equal
There are different levels of loan approval in the mortgage world.
If you’re thinking about buying a home, you’ve probably come across the terms pre-mortgage or mortgage pre-approval.
As the name suggests, it is an initial step in the home loan approval process, and is a kind of “seeing where you stand.”
Pre-qualification is the less robust of the two and often only involves light calculations (without any real paperwork) to determine your purchasing power.
Depending on the bank or lender in question, pre-approval may involve a credit pull and the submission of certain documents such as pay stubs, tax returns and bank statements.
With this information in hand, a lender can give you a fairly good idea of how much home you can afford and whether you qualify for a home loan.
However, it is still very preliminary, which explains why it is called informed consent. It is also not an official loan application, and is not reviewed by the actual guarantor.
Once you find a home and make an offer, you will officially apply for a loan and, if approved, you will be conditionally approved for the loan.
Such approval is subject to the satisfaction of any outstanding conditions, as determined by the loan underwriter.
After these requirements are met, what is called a “final approval” will be issued and you will be able to sign the loan and financing/record documents.
Previous conditions of the document
If you get conditional approval for a loan, you’ll also get a list of conditions that must be met to get final approval.
These are known as “conditions precedent to the document” or PTDs for short. Before you can get the loan documents to sign, you must sign them.
The loan underwriter (or loan processor) will provide this list of conditions when reviewing your loan file.
Typical PTD conditions include things like:
– Verify rent and employment
– Bank statements (show proof of funds or deposits)
– Tax returns or transcripts
– Credit card information
– CPA letter if self-employed
– Mortgage data (for other properties)
– A copy of the driving license for identification
– A copy of the down payment check/earned money
– Home evaluation
– Research Title
– Gift messages
– Proof of homeowners insurance
– Flood certificate
– Lock confirmation (in case your price floats)
– Letters of Explanation (LOEs)
As you can see, there is still a significant amount of work involved once you have been conditionally approved for a mortgage.
This explains why getting a mortgage can take a month or longer, even if you’re approved within days (or minutes).
However, many of these elements are straightforward and can be met quite easily. Others simply take time, such as a home appraisal and title search.
There are also times when the guarantor needs more information, so a Letter of Explanation (LOE) may be needed to clarify any questions or confusion.
advice: Work diligently with your loan officer or mortgage broker to submit a complete, clean loan file up front to avoid additional paperwork requests later!
Final approval and consent to close (CTC)
Once your list of PTDs is met, you will receive what is known as a “Clear to Closing” (CTC) notice and final approval from the guarantor. This is great news and means you’re almost at the finish line!
The “Clear Close” is the guarantor’s way of saying that all conditions have been met and the loan documents can finally be created. At this time, you will also receive the Closing Disclosure (CD).
It lists all the details of your loan, including your interest rate, monthly payment, closing costs, and your right to cancel (if applicable).
This document must be sent to you for review at least three business days before your loan signing.
At this time, you will also schedule an appointment to sign with a notary (or electronic signature if available in your state). You will receive wiring instructions from Escrow.
But wait there’s more!
Pre-financing conditions
Once you sign your loan documents, there may be another set of terms known as pre-financing terms, or PTFs.
This usually involves some housekeeping by the lender and the title/escrow company and may just be a matter of confirmation and sending a wire.
Common PTF terms include things like:
– Check job opportunities
– Final credit check (to see if there are any new debts/inquiries)
– Verify the closure of funds
– Any additional letters of explanation
– Paying mortgage loans
– Title/escrow tasks such as sending a telegram or requesting proof of funds
After the terms of the PTF are met, your loan will be able to be funded and registered with the county clerk.
This may take a day or two depending on timing, wiring, etc. Yes, it takes a long time, but mortgage is a big hassle so be patient!
Can my application still be rejected after conditional approval?
The short answer is yes. The process of obtaining a home loan generally takes 30 to 45 days.
During that period, if anything material changes or is discovered by the guarantor, your conditional approval could turn into a loan denial.
For example, you may be denied if the guarantor finds out that you quit or lost your job, or if you miss a different mortgage payment. Or if you apply for other loans or accumulate new debt.
The same may be true if you cannot verify income, assets, etc., or if the home inspection reveals problems with the property that cannot be resolved.
Maybe the appraised value came in low and you no longer qualified, or interest rates skyrocketed and you failed to lock in your loan.
There are countless ways to put your mortgage at risk. While some things may be out of your control, many are not.
This is why you are usually told to do nothing and wait until the loan is funded before spending or making any major changes in your life.
Ultimately, lenders want to know that you can repay the loan, so anything that contradicts that belief could put your approval in doubt.
To make the process as painless as possible, do as you are asked and submit documents promptly when asked.
Mortgage approval for financing steps
- Mortgage prequalification (optional)
- Mortgage pre-approval (optional)
- Formal loan application
- Conditional loan approval
- PTD conditions are met
- Final loan approval (clear to close)
- Signing the loan documents
- PTF conditions are met
- Loan financing
- Loan registration
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