What happens after underwriting? Mortgage approval and closing

June 24, 2021 - 7 min read

What happens after underwriting?

Achieving final approval from the mortgage underwriter is a big deal — but it’s not quite time to celebrate.

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You’ll go through a few more steps before you get the keys to your new place.

The lender has to double-check your income and employment. And you still have to sign final documents and pay closing costs.

Learn exactly what needs to happen after final approval to put your home sale over the finish line.

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Final steps in the mortgage process

Once your mortgage underwriter has signed off on the loan, there are just a few more hurdles to clear:

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  1. Your lender will conduct a final review, double-checking to make sure your documents are correct
  2. The lender will probably do a quality control check, pulling your credit report and verifying your employment one last time
  3. You’ll get your closing documents at least three business days before closing to review before signing
  4. You’ll bring in your cash to close and sign your final documents

Some lenders will fund your home loan almost immediately (table funding), while others may take a day or two to review the signed package first.

Find out in advance how your lender does things to avoid unwelcome surprises.

Final approval vs. conditional approval

Most borrowers get a ‘conditional approval’ before the ‘final approval,’ so don’t be surprised if your mortgage underwriter has some questions about your financial situation.

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Mortgage underwriters are people employed by the lender to review and analyze your ability to repay the loan.

The underwriting process will check your bank statements, credit history, and pay stubs for verification of employment. Self-employed borrowers may need to submit transcripts from their tax returns.

If anything looks amiss in these documents or raises questions for the lender, you may receive a conditional approval with a few extra steps before closing.

As part of your conditional approval, the underwriter will issue a list of requirements. These requirements are called “conditions” or “prior-to-document conditions.”

From ‘conditional approval’ to ‘clear to close’

To meet these conditions, you may need to submit additional documentation, such as:

  • Additional bank statements or pay stubs — The lender may need this additional information to get a fuller picture of your financial situation
  • Gift letters — If a close friend or family member gave you money to pay for closing costs or your down payment, you need a letter from the donor confirming the gift
  • Verification of insurance — If you’re using a conventional loan with less than 20% down, your lender will require private mortgage insurance. (USDA and FHA loans come with built-in mortgage insurance; VA loans don’t require it)
  • Explanations — Your lender may want you to explain late payments or large transactions that appear in your bank statements. If they’re anomalous, they shouldn’t affect your eligibility

There’s no need to take these requests for additional information personally. Conditional approvals are a common part of the mortgage process.

Your loan officer will submit all your conditions back to the underwriter, who should then issue a “clear to close,” which means you’re ready to sign loan documents. This last verification is your final approval.

How long does it take to get final approval?

Getting your loan from conditional approval to final approval could take about two weeks, but there’s no guarantee about this timeframe.

You can help speed up the process by responding to your underwriter’s questions right away. Submit the additional documents the same day of the request, if possible.

By providing documents and answering questions, you’re doing your part to keep your loan on track.

Final approval is not quite the end of the mortgage process, though. You still need to sign documents and go through a post-signing mortgage approval process. Read on.

What happens after final approval?

After you receive final mortgage approval, you’ll attend the loan closing (signing). You’ll need to bring a cashier’s or certified check for your cash-to-close or arrange in advance for a wire transfer.

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As your closing day approaches, you must avoid changing anything in your mortgage application that could cause the lender to revoke your final approval.

For instance, buying a car might push you over the debt-to-income ratio (DTI) limit. Or, opening a new credit card account or applying for a personal loan could affect your credit score.

Do not open credit accounts or finance big purchases prior to closing. This could affect your loan approval.

If this happens, your home loan application could be denied, even after signing documents.

In this way, a final loan approval isn’t exactly final. It could still be revoked.

This really happens to homebuyers. So protect yourself. Once you apply for a mortgage, enter a “quiet” period. Buy only the basics until your loan is “funded.” Add nothing to your credit balances, and do not sign up for any new accounts.

This is good advice whether you’re a first-time homebuyer, a refinancing homeowner, or an investor buying a rental property.

Document review: LE vs CD

You may remember that when you applied for a mortgage, the lender provided a Loan Estimate (LE) form which outlined your mortgage terms and provided an estimate of your costs.

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Now, at least three business days before your closing day, you will receive a Closing Disclosure (CD) form.

What’s the difference between these two documents?

  • Loan Estimate form: This document shows an estimate of your loan terms and loan costs which can vary based on type of loan, mortgage rate, and loan amount
  • Closing Disclosure form: This document shows what you’re actually scheduled to pay, both on your closing day and for your monthly payments

There shouldn’t be a huge difference between your LE and CD, but it’s up to you to compare the documents to make sure.

What happens after Closing Disclosure?

Federal law requires that mortgage lenders provide a Closing Disclosure at least three business days before your closing date.

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When you get your CD form, you need to compare it against the Loan Estimate you received when you made your mortgage application.

Some charges on your Loan Estimate, such as the loan origination fee and appraisal fee, should never change on your Closing Disclosure.

If these fees have changed, contact your loan officer and ask for a cost correction. Even a 0.25% increase in your loan origination fee can have a huge impact on closing costs, since this fee is based on your loan amount.

Costs that can change from LE to CD

Lender fees shouldn’t increase between your LE and CD, but other costs listed on your CD can increase.

Some can increase by up to 10% while others can increase by any amount.

  • Can increase by up to 10%: These include survey fees, title search fees, and pest control fees. Since these services are provided by third parties, the costs aren’t controlled directly by the lender
  • Can increase by any amount: Some costs depend on the final details of your loan, so they could increase significantly between your LE and CD. Your homeowners insurance provider, for example, may require an upfront payment. Or you may need to pay property taxes in advance. Delays in your closing day could increase some costs, too

Be sure to ask your loan officer or closing attorney about any cost increases you see on your CD.

What about the interest rate?

The interest rate on your pre-approval or Loan Estimate should resemble the rate on your Closing Disclosure, especially if you locked in your rate early in the loan process.

In fact, it’s illegal for lenders to underestimate rates and fees on a Loan Estimate only to surprise you with higher costs on the Closing Disclosure, according to the Consumer Financial Protection Bureau.

Even so, your interest rate could still go up if:

  • Your financial situation changes: A credit score drop or a loss in income could prompt the lender to increase your rate or rescind your eligibility
  • Your rate lock expires: Delays in closing could mean you have to lock in a new rate, although rate lock extensions can often prevent this
  • You change loan programs: If you decided to get a conventional loan instead of an FHA loan, for example, you’d likely see different rates
  • The home’s appraisal came in low: A low appraisal changes your loan-to-value ratio (LTV), which could affect mortgage rates or eligibility
  • Your lender couldn’t verify everything: If underwriters can’t verify your side-hustle income or your overtime, your debt-to-income ratio could go up. This could cause an increase in your rate
  • You changed details of the loan: If you’ve decided on a 30-year term instead of a 15-year term — or if you’ve decided to put less money down – your rate would go up

Before you lock in a mortgage rate, get a realistic estimate from your lender about how long it will take to close the loan.

Choosing a sufficient rate lock period is one of the best ways to protect yourself from surprise rate increases on your new loan.

Dry versus wet settlements

When everything checks out on your Closing Disclosure, you’re ready for closing day.

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There is one final task, and it’s what the entire home buying process has been leading up to: The lender must fund the transaction by providing the cash to pay for your new home.

You might have a “wet” settlement, where the lender’s money is disbursed at closing. This is also called “table funding.”

Some lenders prefer a “dry” settlement, which means the money is paid a few days after closing.

Ask the closing agent or your mortgage broker how lender funding will be handled. A payment delay may make sellers cranky — if not worse.

As the buyer, you will almost always have to bring money to closing to cover your down payment and closing costs.

It’s OK to use a cashier’s check, certified check, or to wire the money. You cannot bring cash to most title offices.

Be sure to check with the closing agent if you wire money. Confirm that the wiring instructions are correct, especially the recipient account number.

Loan funding: The “final” final approval

Your mortgage process is fully complete only when the lender funds the loan. This means the lender has reviewed your signed documents, re-pulled your credit, and made sure nothing changed since the underwriter’s last review of your loan file.

When the loan funds, you can get the keys and enjoy your new home.

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Peter Miller
Authored By: Peter Miller
The Mortgage Reports contributor
Peter G. Miller, author of The Common Sense Mortgage, is a real estate writer syndicated in more than ​50​ newspapers nationwide. Peter has been featured on Oprah, the Today Show, Money Magazine, CNN and more.