As published in Scotsman Guide's Commercial Edition, October 2005.
The most stressful stage of the loan process for mortgage brokers and borrowers alike is often the processing and underwriting stage. This is when the final determination is made between “approved” or “declined.”
If a thorough prequalification was done on your loan request, the stress level for all parties will be greatly lowered and all involved will be better equipped to reduce delays in this stage of closing the loan. However, even when the most-comprehensive prequalification measures have been taken, there are still issues that may arise. It is imperative to go into the loan process with a realistic expectation of timing as well as to take steps to hedge off common potential delays.
Which comes first?
Between lenders, you will find a variance in how the processing and underwriting stage plays out. After the initial registration, submission or prequalification, most lenders will require an initial deposit from the borrower before the file can proceed through processing and underwriting. This fee may include a registration or application fee as well as costs for third-party reports (such as mortgage verifications, employment verifications and requests for payoff statements). Some lenders will require a deposit for closing costs at this point as well. These fees are necessary because there are costs associated with proceeding with a loan request, regardless of whether the loan actually closes —reviewing, processing, underwriting and generating third-party reports for which the lender is ultimately responsible.
Some lenders will underwrite as the first step after receiving a file, while others will process the file before underwriting. When underwriting takes place first, borrowers receive an added benefit — they typically receive an approval conditioned only by the appraisal and stipulation items before any third-party reports are ordered. On the other hand, when a file is processed and third-party reports are obtained before underwriting, the advantage is that there is not a separate appraisal review, and underwriters review the complete package concurrently.
What’s taking so long?
So now the lender has your loan file and has given it a pre-approval. It’s smooth sailing from here, right? Actually, many brokers have learned the hard way that many issues may arise during the actual processing and underwriting stage that can cause significant delays to a loan request — even a denial.
One of the most-common reasons for processing delays is that borrowers and sellers do not provide the required information promptly. When a lender gives a turnaround time of 45 days, for example, it assumes that all requests for information will be provided promptly, typically within a few days. Many lenders will give deadlines for responding to their requests, and any deviation from these deadlines can delay the loan file.
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