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The Loan Process Explained Bookmark this page Loan Tips and Advice Center Topic: The Loan Process Explained See the subtopics menu for tips and advice about the loan process. For additional information about loans, see the topic list directly below. Loan Topics · Auto Loans · Refinance Mortgage Loans · Student Loans · Home Equity Loans · Loan Terminology · Loan Glossary · New Mortgage Loans · Loan Process Explained · Loan FAQ The Loan Process Explained - Subtopics · About the Loan Process · About Applying Online · About Automated Lending · Home Equity Loan Process · Mortgage Application Process · Mortgage Loan Application Speed · Prequalification vs. Pre-approval About the Loan Process Is the loan process complicated? Loans are actually relatively simple concepts. A lender gives you money and you pay the lender back with some extra money to make it profitable for the lender. No matter what type of loan you are applying for – auto loan, mortgage loan, personal loan – the basic procedure is the same. You send an application to the lender who reviews the information and decides whether or not to lend you the money based on whatever factors the lender finds most important. While some lenders look strictly at credit scores, other lenders take into consideration how much extra money an applicant has or how long the applicant has been employed. If the loan application is approved the money is given to the applicant and the process of paying the loan back begins. Mortgage and auto loans will have a lengthier process since the collateral must be verified, but all in all the loan process is pretty straightforward in most cases. ^ Back to top About Applying Online What is the process of online mortgage loan applications? More mortgage lenders are encouraging applicants to fill out mortgage applications online, as it saves time and money for the lender while it also provides the applicants an easy format to apply. Most mortgage lenders have taken great strides when it comes to making the online loan application process an easy one, and in most cases this is by far the easiest way to apply for a mortgage. The process is quite simple: An applicant fills out the application and electronically sends it to the lender. Since the process is usually automated, some applicants receive immediate approvals based upon the information on their applications and their credit scores. The application is usually assigned to a mortgage consultant regardless of the automated credit decision, and the consultant contacts the applicant to fill in any gaps in the application and to discuss the various mortgage options available. If the application is approved the lender then sets out to get all the various documents needed from the applicant such as bank statements and copies of tax returns. Once all the information has been verified, the home has been appraised, and the title has been verified to be clear, the closing date arrives and the applicant becomes a homeowner. Several things can throw the process into a delay, such as a need for additional documentation or a problem with the sellers, but most mortgage loan applications go quite smoothly as long as correct information was provided during the application process. ^ Back to top About Automated Lending Is an online mortgage loan approval always accurate? Online loan applications are largely automated, so this means that it is highly unlikely that an actual human gets to take a look at your application until after the computer has approved or denied the application. Although computer programs speed up the decision process considerably there are some things that human consultants can see that computers skip over. Even though the computer declares your loan application approved, the mortgage consultant may take a look and realize that there is some reason why the loan cannot be approved. In the vast majority of instances, an approval from the automated lending system online remains an approved loan, but there are times when this isn't the case. Likewise, while most denied applications remain denied, there are certainly circumstances which may come to light when the consultant reviews the application, making it an approved loan. Consider the online loan decision as a tentative one until you speak to a representative from the lender. ^ Back to top Home Equity Loan Process What should I expect when applying for a home equity loan? Applying for a home equity loan is sometimes easier if you apply with the same lender who has your first mortgage loan. This lender may have some items on file – appraisal, survey, previous loan application – which can speed up the process considerably. You do need to keep in mind, however, that even if you use the same lender there are still some things which need to be done to make sure that everything is within legal boundaries. For example, even if you secured your first mortgage loan weeks ago you will probably still need to do another title search before your equity loan can be disbursed because the lender must make sure that there are no other people or organizations entitled to the home. Applying for an equity loan is straightforward; you can usually fill out the application online, over the phone, or at an office location for your lender. The home equity loan funds are disbursed depending upon the terms already agreed upon. If the loan is for consolidation purposes the lender may issue individual checks to each creditor, but if the money is for another use the borrower may receive a check in his or her name. The lender then assumes the second position on the home's title because the first position is held by the lender for the first mortgage. ^ Back to top Mortgage Application Process What is the mortgage application process? The mortgage application process is a multi-tiered process that involves more than one mortgage professional working with your application. Although many lenders have streamlined the process to involve fewer people, many mortgage lenders still have many people involved from the receipt of the application to the funding of the loan. A mortgage consultant receives your application and reviews your options with you while also ascertaining your creditworthiness. If your application is approved the file moves on to a mortgage processor, whose primary function is to collect all the necessary documents from you while preparing you for closing. A mortgage underwriter does a final review of the application to make sure that there is nothing amiss, and a mortgage closer prepares and sends all the necessary documents to the attorney or closing agency to conclude the process. Some mortgage lenders have managed to train their employees effectively enough to where one or two people manage the entire process for each application, but some lenders feel as though several people involved increases the odds of catching any problems before the loan goes to closing. ^ Back to top Mortgage Loan Application Speed How can I speed up the mortgage loan application process? Mortgage loan applications are probably unlike any other loan application you have previously filled out. It isn't that the application is complicated, but it is a much lengthier process that what you are familiar with. With mortgage loan applications, one question may lead to another and another and so on. For example, if you state on your application that you have a certain amount of money for a down payment you will then be expected to explain where the money for the down payment is coming from. If the money comes from someone else you will then need to explain if it's a gift or a loan, and then go into detail about the agreement to either pay the money back or not. The best way to get through a mortgage loan application is to have as much information available as possible before you actually sit down to fill out the application. You should be familiar with how much money you have in the bank, what you pay toward debt each month, a listing of your employment history and addresses for your previous residences, and if you have already picked out a home you should have the legal address available. Any information that you don't have available to you at the time that you fill out the application will have to be supplied later, so the more information you can put on your application the better. ^ Back to top Prequalification vs. Pre-approval What is the difference between a mortgage prequalification and a pre-approval? Part of the loan approval process for mortgage loans involve demonstrating to the seller that you can secure financing in the event that your proposed bid to purchase the home is accepted. Lenders offer two options for this, pre-qualification and pre-approval. While pre-qualification and pre-approvals are both useful, one is definitely superior to the other. A pre-qualification is relatively easy to get. Most lenders will hand over a pre-qualification letter based solely on information the applicant gives, but without ever verifying any of the information. Basically, a pre-qualification letter tells the seller that the lender would probably approve a loan for the applicant based on the information the applicant has supplied, but the information has not been verified at all and an application has not been approved. On the other hand, a pre-approval letter is given only after an application has been submitted and tentatively approved pending approval of the home. This letter tells the seller that the lender has already approved the applicant and the funds will be available if the home appraises as it should. It is far preferable to get a pre-approval letter before you even pick a home to buy because this can be the leg-up you need on the competition when putting in a bid to buy a home. ^ Back to top Mortgage Refinance Calculator Should you refinance your existing mortgage? This calculator can help you that find out. Enter the specifics about your current mortgage, along with your current appraised value, new loan term, new rate and closing costs. Together, this can determine how much refinancing might save you overall. · Calculate how much you could save in interest Note: This information is for general use only. Use this information as part of a full research process. General advice does not always apply directly to individual matters. Please consult a local expert with specific and complex questions about your individual situation. Recommend this page to a friend  ^ Back to top

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