Loan Approval

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Loan approval is formal authorization to borrow money from a lender.

What is a loan approval?

A loan approval means that a lender, usually a bank, has agreed to finance your loan and allow you to borrow a pre-determined amount of money. The borrower agrees to make monthly repayments for the duration of the loan term.

Loan Approval Process

Approval for a home loan is a bit intensive than other loans. There are six distinct phases in order to be approved for a mortgage.

1. Mortgage Pre-Approval

Pre-approval is the first phase of the mortgage approval process. You should be pre-approved before you start shopping for a home. This phase is an assessment of your financial situation to see if you are eligible for a loan.

During pre-approval, lenders will pull your credit report and inquire about your financial history. Additionally, lenders will also ask about your income, debts, and employment history.

You will receive a written statement from your lender stating how much you can borrow, the interest rate you qualify for, and any potential loan programs available to you. A pre-approval is not a guarantee of a loan. Rather, it is merely the first step in the process.

2. Shopping for a Home

This is probably the funnest part of taking out a mortgage. Now that you know approximately how much money a lender is willing to lend you, you know your budget and what you can probably afford to pay for a home.

You can start browsing homes online on real estate websites such as Zillow, Trulia, or Realtor.com. You can also work with a real estate agent that has a good understanding of the local market and can narrow down the search to specifics about what type of home you are searching for.

Once you’ve found the house of your dreams, make an offer! You will likely need to put down a cash deposit that shows the seller that you are a serious buyer. This deposit is known as “earnest money” and buys you time to finalize the loan after you sign the purchase agreement.

3. Mortgage Loan Application

Now, you must officially apply for the mortgage. This will require a handful of documents to show that you are a trustworthy borrower. The lender will assign a loan officer to your application that will guide you through this process.

For instance, you will need two years worth of W-2’s and bank account statements. Once all the proper documents have been collected, you will receive a Loan Estimate. This form describes the terms of the loan you qualify for as well as an estimate of the costs of your loan.

4. Loan Processing

Your lender’s loan processing department will gather all the required information for your loan. This includes documents that verify your employment, ordering the property appraisal, as well as ordering a title search.

5. Underwriting

This is the phase that heavily influences your loan approval. Your lender’s underwriting department will review all documents, check for accuracy, and ultimately make the decision whether you are approved or rejected for the loan.

6. Closing

Closing is the last phase of the mortgage process. Three days before your closing date, you will receive a Closing Disclosure that finalizes the costs and fees that were in your Loan Estimate form. Additionally, 24 hours before your closing date, you can do a final walk-through of the property

On your closing date, you will sign a large stack of documents to complete your purchase, put down your down payment, and pay your closing costs as indicated on your Closing Disclosure. Furthermore, you will also sign documents with your lender to officially take out the home loan. Also, you will sign papers to complete the purchase transaction with the seller.