When is your Loan Really Done?

On a recent transaction, representing a buyer, I had the typical questions asked by the buyer.  They wanted to know once their loan was approved, how soon they could sign.  I gave them a shorter version of the steps listed below.

There are many steps to a mortgage loan when purchasing a home, many that are somewhat invisible to most buyers.  Here’s what actually happens.

  1. When a buyer applies for a loan to purchase a home, the lender usually starts by pulling a credit report on the borrowers. A loan application is taken and the borrowers are asked to provide bank statements, Tax Returns (sometimes), statements from other financial accounts and a couple of pay stubs.  The lender also verifies employment.
  2. With this information, the lender can then run the borrowers through a process called “Automated Underwriting”. This step typically can be done in a day.  As a result of Automated Underwriting and the other financial “things” falling in place, the lender can be in a position to issue a “Pre-Approval” Letter.  Ah, but we’re not done.
  3. The lender then wants a copy of the home purchase contract and a preliminary title report.
  4. At this point the lender probably will order the appraisal and lock the borrowers loan rate.
  5. It can then take 2 or 3 days (possibly longer) for the appraisal to actually occur after it’s ordered.
  6. Once the appraiser goes and looks at the property, compares it with other comparable homes, they write up and issue their report to the lender. This takes another 2 to 3 business days.
  7. Then the underwriter needs to review the appraisal. If everything looks OK with the appraisal, meaning they accept the comparable sales and the appraised value is, at least as much as the contract price, the buyers get final loan approval.  This step takes 1 to 2 days.
  8. The amount of time in which steps 1 through 7 above is completed can be as little as 10 days, but more likely is between 14 and 17 days, with some banks even longer.
  9. The borrowers now think that their loan docs will be ready to sign in the next day or so – WRONG. Often times, there are a number of conditions called “Prior to Doc Conditions” that must be satisfied before loan documents can be generated.  These conditions vary from loan to loan, but could involve the borrowers and/or the title company.  Once these conditions are satisfied, they have to be reviewed by the underwriter again.  This can take 1 to 3 days elapsed time.
  10. Now your bank is ready to release loan docs to title for the borrowers to sign. This process usually only takes a day.
  11. The borrowers go in and sign their loan and escrow docs and the loan docs go back to the lender. AGAIN, the documents you just signed have to be reviewed by your bank.   That can take 1 to 2 days.  Finally, the loan doc department releases the borrower’s file to the “Funder”.
  12. The Funding department of your bank contacts the title company and arranges with them to receive your loan funds. This has to happen (usually) before 2pm on any given day.  That 2pm deadline is usually referred to as the “Wire Cutoff Time” for wiring funds using the Federal Reserve electronic payment system.  Your loan funds have to be received by the title company a day prior to closing escrow.  Also, it is better for the borrowers NEVER to CLOSE ESCROW on a Monday.  The reason is that the borrowers are paying interest from the day that funds are received by the title company.  When closing on Monday, the title company needs to receive the funds on Friday.  In this case the borrowers then get to pay interest on their loan for Saturday and Sunday.

The above describes the many steps that occur from the time you get an offer accepted to buy a property and you’re ready to close escrow.   From start to end, an escrow typically takes 30 to 35 calendar days.  In the very near future there will be 5 to 7 business days added to that timeframe.  Ask your lender about “TRID”.

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