Mortgage loan documents come in three types, and you’ll get them at different times during your loan process.
Fortunately, you don’t have to read all of these things, and you only have to keep some of them.
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.
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:
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.
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.
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.”