Author: Christian Olin, VP of Direct Lending at OnQ Financial
As a realtor, you are usually the first point of contact for any homebuyer. Whenever your client has a question, you are the first person they think to ask. They are going to be looking for guidance from you. That’s why the realtor must take on many roles; negotiator, salesperson, loan expert, and even occasionally family therapist. It’s supposed to be hard work. Otherwise, it wouldn’t be interesting.
Since you are going to need the answer to all their questions, it’s always a good idea to brush up on your knowledge of the loan process. If they are contacted by a stranger asking for their information, you must be able to explain it is their underwriter. If your client wonders what documents they need for closing, you are going to have to provide an answer. Even if you’ve never bought a home yourself, you should be very familiar with the mortgage process. Here are the ins and outs of securing a mortgage as well as critical milestones for you to track for your client.
Are They Financially Prepared?
Having all the documentation ready in advance can streamline the process. It is not a step you should skip over. We know many people are uncomfortable disclosing their financial information. Nonetheless, it is going to be necessary. You want your clients to be prepared and understand the kinds of paperwork they will be required to submit. It is a big responsibility that you shouldn’t take lightly. Make sure that they have done research on different lenders, visited their websites, and looked into their interest rates. Because of many different factors, interest rates fluctuate every day, and some lenders may be able to get your client a better deal. After you have encouraged your client to understand their finances, have them gather the documents that they will need to prepare for their mortgage.
- Two years of W-2s
- Paystubs dating back two months.
- Bank statements verifying assets for two years
- ID to verify who you are.
Next, you will need to get pre-qualified, which is the first part of the mortgage application process. Your client should pre-qualify before they go home shopping. Giving your clients choices and seeing what they choose is best. Giving unbiased options is a strong signal of trust.
The pre-qualification is based on verbal verification. Internally, the lender will make some quick calculations and a decision. The client must be as honest as possible with their answers. Lenders are very meticulous throughout the approval process, so lenders discover falsehoods pretty quickly.
Nowadays, it’s easier to get pre-qualified. A tiny phone app will provide you access to a simplified application process. Your client will be answering questions about their income, employment, debt, and assets. You can send pictures securely and fill in other details inside the app as well. When finished, the lender discloses a letter to your client, and they are ready to go home shopping.
Starting Their Application
Once you have found the perfect home and have signed a sales contract, you will return to the application and put in information about the home you are trying to purchase. A disclosure is issued to your client, and they will be able to see the estimated terms of their loan. Origination can be an expensive process. It takes a lot of moving parts and different hands to make the whole process run smoothly.
A part of the process that many realtors don’t consider discussing with their clients is locking the loan. It is up to your client when they want to secure the loan, although sooner is often better. The earlier you lock, the less risk your client takes. Your client will be able to take advantage of the rate the lender is currently offering. However, if the market improves and rates lower, your client will be locked into that rate. Usually, the best play would be to lock early, so you are sure about the interest rate the loan will close with. You can watch the market for a while beforehand, so you know you’re making the best choice.
There are a few milestones you should be able to track with your client as their application moves along.
After you have put in your application, the first touchpoint the lender should have with the client is processing.
When your application moves to the processing department, they will first organize all your paperwork, making it easier to understand the loan file. The processor also orders any appraisals and may issue loan disclosures. In addition, they will check that your client has homeowner’s insurance on the home they are trying to buy.
The processor is the first person to handle your loan file, so they are an essential part of the mortgage process. Usually, processors try to send disclosures electronically and recommend taking advantage of E-consent. Sometimes disclosures, especially with some government programs, can be very lengthy documents. Using E-consent can be a great way to review your documents and save the paper. Once the loan files are organized, and the disclosures are sent out, the loan is moved from processing to underwriting.
Finally, everyone is on the same page. The client knows the terms of the loan, and the lender has all the documentation verified so they can make an educated decision. Now the loan will move into underwriting. The underwriter is the key decision-maker on your client’s loan. During this part of the process, all the documentation is reviewed, and the underwriter will consider a few different factors when deciding to approve the loan. Often an underwriter issues a conditional approval.
This will mean that additional documentation is required. Some examples of conditional approvals can be a request for a letter of gift. A letter of gift explains that if you are using a donation for your down payment and not another loan. Another example is a letter of explanation. A letter of explanation is a statement about an adverse credit event that may be showing in your client’s credit history. Both of these documents require a signature from the borrower. It is essential to look out for a conditional approval, as this will require legwork from the borrower. Once the borrower has given their conditions, they will be ready for closing.
Everyone involved in the home loan process will be very aware of the closing date. This is when both the borrower and seller sign and notarize closing documents at the title agency. This is an important time for everyone because all their hard work is paying off. For the borrower, this experience can be nerve-wracking. They’re probably excited and a little anxious to get into their new home. Before the closing date, though, a closing disclosure is sent out.
This document will highlight the final points of your client’s loan. This document will also outline all the fees that your client should have prepared at closing as well as the estimate and payment information. Once the closing date passes and the documentation has been signed, the funding will be sent to the sellers. A handoff of keys will have to be arranged. You’re done and you can breathe a sigh of relief. Congratulate your borrower and let them know, if they are interested in purchasing another home, to reach out again.
Meet the Author:
Christian Olin, VP of Direct Lending at OnQ Financial
Christian started his career right out of college as a rookie on Wall Street with Morgan Stanley. After cutting his teeth there, he was quickly poached by a private investment bank, which is where his love of finance grew into a lifetime obsession. With over 20 years of experience, he has become a specialist at sales management, strategic business development, building best of breed teams, and cross-functional selling. In particular, his experiences in emerging finance technologies have been useful in his current role as Vice President of the direct lending team at On Q Financial. A place where he continues to create new opportunities for mortgage lenders and their partners while improving the bottom line.