The 1-2-3 of Closing Your Home Loan

To provide you with financing for your home purchase your lender must follow three steps:

1. Pre-qualification - Determining the limits of your borrowing power and working out any credit issues that may exist.
2. Pre-approval - Your loan professional will work on getting you a commitment based upon several assumptions. This is not a firm commitment but a guideline to help others understand how much you would qualify for under certain circumstances.
3. Full Credit Approval - The actual credit approval of your loan. This gives you a firm commitment from a lender that you can take with you when shopping for a home. There are several sub-steps between the approval including, but not limited to:
   Obtaining a title report on the property.
   Verifiying information about you and your employment, earnings, savings, etc.
   Apprais al of the subject property.
4. Closing - A third party (escrow or title), chosen by you and your seller (or your lender), coordinates the paperwork needed to fund your loan and providing good title to you.  Your lender, in conjunction with your escrow/title, will give you a Closing Disclosure.

Paperwork from You

Here are the things your lender is going to need to get the ball rolling on your pre-qualification and pre-approval:

1. Earnings statements or proof of self-employment (i.e. W-2 forms, pay stubs and tax returns)
2. A copy of the purchase contract (if a purchase) signed by you and the seller. This provides your lender with necessary details about the closing date, costs paid by the seller, etc.
3. Information about your debts, such as the balances, monthly payments, etc. This includes: car payments, credit cards, child support paid out. It does not include utilities, insurance premiums, etc.
4. Evidence of any other mortgage and/or rental payments.

Closing - The Final Step

After you've applied for and been approved for your home loan, you can finally set a date to close on your new home. At the closing, your first mortgage date is set and you are given the keys to your new home. Here are some of the hurdles to be crossed in the closing process:

Title Search and Insurance - To protect all parties concerned a title search is done on the property to insure that there are no defects in the title that will hold up the sale. The defects can range from liens to judgements to other legal claims, which may be legitimate or fraudulent. The insurance also protects a lender from a fraudulent sale.

Homeowner's Insurance - This insurance policy protects your new home from fire and other dis asters. Other coverages are available from the agent of your choice.

Closing Disclosure - Your lender and your escrow will prepare what is called a closing disclosure.  This will come close, within tolerances, to matching your Loan Estimate.  This will disclose to all parties where all of the funds are going in the transaction.  At this point any funds that are due from you or to you will be shown and instructions as to how they will be delivered will be given to you.

Closing/Funding -  You will sign your loan documents and your loan will fund.  Funds will be sent from the lender to title and they will make any payoffs that need to occur.  The new deed will record with the county recorders office.  You will then own the property!