Mortgage loan documents: 3 sets and you’re done
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Mortgage loan documents come in three types, and you’ll get them at different times during your loan process.
- Your initial Loan Estimate (LE) provides the terms and costs of the loan when you apply. Your loan application is also part of the first set of paperwork
- The LE is not binding, however, until you sign a rate lock form, which commits the lender to a certain program, at an established rate for a specified time period. This usually occurs during loan processing
- Your final set of disclosures is the most important and includes another loan application, a Closing Disclosure (CD) and other specific “riders” that apply to certain loans (like adjustable loans or government-backed programs). You’ll get these at (or better yet) slightly before closing day
Fortunately, you don’t have to read all of these things, and you only have to keep some of them.
Awaiting your final loan documents
You’ve applied for a mortgage and received conditional approval. But to reach final approval and clear to close status, the lender needs a bit more from you. You have to satisfy your lender’s pre-closing conditions. Then, the final loan documents can be issued and you can proceed to close.
In other words, you’re almost at the finish line. But you need to complete a few extra steps first. Knowing what to expect can ease this process. And it can help you fulfill your lender’s requests in a timely and satisfactory manner.
Satisfying pre-closing conditions
The hardest part of the mortgage process is over. You’ve completed your loan application. You’ve submitted important documents and financial records. And the lender has approved your loan but has a few final requests before the loan can close. This is common, especially for refinance loans.
Some pre-closing conditions, for example, require you to:
- Provide extra financial documents or proof of income. If you’re self-employed, you may need to furnish profit and loss statements or a business license, for instance
- Prove your employment, work history and income
- Confirm your rental or home owning history
- Solve credit issues. The lender may ask you to explain or rectify errors, gaps, late payments or red flags in your credit report or credit history
- Furnish proof of mortgage insurance and/or homeowners insurance
- Explain a recent major purchase, withdrawal, deposit or credit application
- Pay down other outstanding debts, especially if your debt-to-income ratio is too high
- Increase your down payment to make your monthly mortgage payment more manageable
- Provide proof of sale (a real estate contract) of your current home if applicable
What to be aware of
To complete the process, “Most lenders will require your file to be fully cleared to close. This means no conditions remain, except those that may get cleared on your closing date,” says Craig Garcia, president of Capital Partners Mortgage.
It also means that, “All necessary documents have been executed. Pre-funding borrower stipulations have been received and reviewed. The appraisal has been reviewed. And your rate has been locked in,” Chris Lewis, sales and operations manager at Angel Oak Home Loans, says.
Your underwriter grants a final approval and “clear to close” once all these requests are met. Then, your loan officer calls you to schedule your closing date.
Rate locks are tied to the property address. You can lock in a mortgage rate any time you have an application in process to finance a specific property. You can’t lock a rate when you are being pre-approved and have not yet chosen a home to buy.
The longer your lock period, the more it costs. 30-day locks are standard for most lenders. If you are ready to close and lock for 15 or 7 days, you should get a discount on the loan fees or interest rate. if you lock for 45, 60 or more days, expect to pay for the privilege.
Locking protects you from a rate increase before you close. “Floating” your interest rate means you’re taking the chance that your final rate could be higher or lower when you close. If you choose to lock, be sure the lock won’t expire before the projected closing date.
“Lenders normally have procedures in place not to draw the final loan documents unless the lock covers the needed time period to close and fund the loan,” says Garcia.
Many lenders can extend a lock a day or two, but if you “blow your lock” and don’t close on time, you may have to pay more. It depends on the lender and if interest rates have risen, fallen or remain unchanged.
Drawing the final loan documents
The lender draws your final loan documents once you’re cleared to close.
“Most lenders need a minimum of 24 hours to generate, review and send these documents to your closing agent or attorney. But if you’re in a rush, ask that your file be given priority,” adds Lewis.
Your right to cancel
If you refinance a primary home, you have a mandatory cooling off period before your loan is final. This only applies to refinances, and only for primary residences. You have three business days after signing to cancel the loan. You must do so in writing in order to invoke a rescission.
“This may delay the funding of the loan for a few days. But it’s viewed as a great benefit of protection for you,” says Garcia. “Say you feel uncomfortable with the loan for any reason over those three days. Then, you have the right to cancel the entire transaction with no consequence.”