Once you've seen ample number of houses with assistance from your real estate agent, an offer you made on your dream home may get acceptance from the sellers. Once the house sale contract is signed by all parties, it's a good time to go back to your mortgage broker to help generate an updated loan estimate corresponding to this house.
Intent to proceed with mortgage financing
After the loan estimate with the new property address is received, and the loan terms are acceptable, you communicate your Intent to Proceed typically by electronically signing the intent to proceed with your mortgage broker. Note that you may choose to lock the rate at this stage or keep it “floating” i.e. unlocked. It's a good time to consult with your mortgage broker about the merits of rate locking then (till your target closing date) or keeping it unlocked for the moment and locking the rate in the coming weeks.
You also shop for the title agency and the homeowners insurance agency you would want to go with.
Underwriter Application Review
Once your mortgage broker presents your e-signed intent to proceed to a wholesale lender, the underwriter application review begins. At this stage, the lender's underwriting team gets to review all the facts presented in your mortgage application. Typically, the underwriting team reverts back with a set of approval conditions that must be met before the mortgage can be approved. Your mortgage broker assists you once again in addressing these conditions in a timely manner. A key condition that underwriters will typically add at this stage is the Appraisal Report, which a third party appraisal management company helps complete.
Appraisal Scheduling & Completion
In this step, an independent appraisal management company helps schedule the appraisal inspection, coordinating with the seller's real estate agent. Appraisals are typically the first cost out of pocket for home buyers. A licensed appraiser inspects the property, and utilizing recent sales data of similar properties in the area, an appraised property value is assigned.
For ensuring compliance with Appraisal Independence Requirements, home buyers shouldn't communicate the identity of the appraiser with the mortgage broker at this stage. Once the appraisal report is checked for factual quality control by the appraisal management company, it's released to the mortgage broker and lender. A lower appraised property value than what was initially estimated has the potential to derail the mortgage application, even making it ineligible under all programs with the new lower appraised property value. So keep a close eye on appraisal and consult with your real estate agent regarding any appraisal contingencies that might be put in place in your purchase contract well in advance.
Note also that an appraisal is different from home inspection. Appraisal's goal is to ascertain the market value of the property, while the home inspection's goal is to find any structural issues with the property that might raise a cause of concern. An appraisal is typically required by the mortgage lender while the house inspection isn't. Nevertheless, home buyers may benefit from concurrently conducting a house inspection with the help of a licensed house inspector to uncover potential issues they should be aware of.
Underwriter Conditions Resolution
In this step, you essentially share supporting documents addressing all of the conditions needed for mortgage application approval. The appraisal report is typically directly communicated by Appraisal Management Company. However, homeowners insurance effective target closing date and Closing Protection Letter with the right mortgagee clause, property tax certification and closing agent's wire instructions are typically communicated by your respective chosen homeowners' insurance agency and title agency to your mortgage broker.
Note that tax certification and title search typically take time as they require checking municipal and county records. So give ample time to your title agency to complete these steps.
Rate locking on your mortgage application is a key decision. It's influenced by prevailing market conditions. Mortgage lenders typically update rates at least once a day. In the events of large movements in Mortgage Backed Securities and US 10 Year Treasury instruments' prices, lenders can often update their offered rates several times a day.
Unless the rate on your mortgage application is locked, it's subject to change. Longer duration rate locks can cost more than shorter duration rate locks. Keep these in mind as you decide on rate locking or keeping it floating/unlocked.