September 3rd, 2019 7:40 AM by Jackie A. Graves, President
A loan application goes through several stages before a final
approval is eventually issued. As the loan application is documented with items
from the applicant as well as third parties, soon the loan file gets to a stage
where the lender underwrites the loan. The underwriter is the individual within
the mortgage company that makes the final determination whether or not the loan
meets the guidelines for the program being applied for. The underwriter will
review the file and the documents included and issue a decision. The initial
decision however is rarely without “loan conditions.” At this stage the file is
in a conditional approval stage. The loan can be approved, just based upon
these particular items listed.
All loans will have loan conditions. But for those not familiar
with the approval process, when the lender contacts the applicant after having
reviewed the file it can cause some uneasiness. Why does the lender want to
know this or that? Is there something wrong with my application? Am I going to
be turned down? The fact is that most of these conditions are relatively tame.
There are two types of conditions lenders issue- Prior to
Document and Prior to Fund. Prior to “doc” conditions are those that command a
little more attention because it’s holding up the loan approval. The lender
can’t deliver closing papers to the settlement agent until these items are
cleared. For instance, an applicant submits bank statements and paycheck stubs
as part of the documentation process. The applicant gets paid on the 1st and
the 15th. The paycheck stubs also reflect these dates and the bank statements
also show direct deposits matching the pay on the 1st and the 15th. But there
is also a deposit on the 10th that doesn’t match up with anything. The deposit
is $6,000. If those funds are needed to close, there will be a prior to doc
condition wanting verification for the source of funds. The approval process
essentially stops until this explanation can be provided and approved.
The more benign condition is the prior to fund condition. This
condition is typical of most all loan approvals and not serious enough to hold
up closing documents, but still needs to be addressed. A common prior to fund
condition might be an updated paystub. Credit documents within a loan file need
to be no more than 30 days old. If the most recent paystub covering a 30 day
period is 45 days old, the lender will assume the next paystub is coming and
move forward with the approval.
The borrower will attend the settlement, sign the closing papers
and send the most recent paystub to the lender, satisfying the condition. The
lender will see the new paystub and release the funds for the mortgage. Other
common prior to fund conditions will be for things like an appraisal with a
specific minimum value or an insurance policy covering the property.
The main takeaway here is that when, not if, the lender asks for
more information is to stay calm and provide the requested items as soon as
able. Don’t delay answering the request. The sooner you provide what’s needed,
you’ll make your closing date on time.
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