How to Get Approved for a Mortgage Loan


This guide will walk you through everything you need to know in order to get approved for a mortgage loan.

By the end of this guide, you’ll have answers to common questions such as:

  • Do I need an FHA, VA, RD, or conventional loan?
  • Is there a difference between an FRM and other forms of non-qualified mortgages?
  • What is PMI and does it apply to me?
  • Should I get a variable rate or a fixed rate?
  • Is the length of time I plan on living on the property important?

After reading this comprehensive guide, you will have a better idea of what’s required to get a loan, what amount you can get approved for, why you should deal with a certified and experienced loan officer, and how to sail through the mortgage loan procedure quickly.

Mortgage Basics

The ways that you may finance a house are as varied as the homes themselves. Homes come in many styles and varying prices, much as individuals do. Because there are several sorts of loans and various alternatives to select from, it’s easy to get overwhelmed.

Mortgage lenders must go over your application and any supporting papers carefully in order to be confident that you will pay back your loan.

As a result, when considering whether or not you are “worthy” of a loan, you will often hear about the four C’s: credit, capacity, collateral, and capital. 

The lender obtains a credit report from all three agencies, TransUnion, Equifax, and Experian. While it may seem strange to some, each person has numerous credit scores.

The most common reason is that credit data from all three of the major credit bureaus is available. While the credit data should generally be identical across bureaus, there may be minor variations. These variances might result in three distinct credit scores even if the score was produced by the same credit rating model. A tradeline, for example, is a term used to describe an item such as a bank account or a mortgage loan—and not all tradelines are reported to all bureaus.

There are numerous credit score models. The scores will differ depending on the sort of loan you obtain, even in the main FICO (Fair Isaac Corporation) systems.

Loan officers frequently hear people say, “That can’t be my score. I just bought a car and my score was nothing like this.” And they’re absolutely correct—each type of lender does use different FICO Score versions. For example, auto lenders often go with FICO® Auto Scores, which is an industry-specific scoring system designed specifically for their needs. In contrast, most credit card issuers tend to prefer FICO® Bankcard Scores or the more popularized FICO® Score 8 instead. Lastly, other vendors usually resort to using Vantage as their chosen scoring system

It turns out that the most popular FICO score for mortgage lenders is FICO Score 8. Even though FICO Score 9 was launched, this is true. Despite the fact that your credit score on isn’t the same as it is on other sites, it should trend in the same direction. Loan officers have advised their clients to pull their own credit scores at or another source and monitor them if they are not ready to have a lender check their credit and update it every week.

Credit Score Ranges

What is the typical credit score? What does a good credit score entail? In this part, I’ll go through the acceptable credit scores in each loan program. FICO ratings range from 300 to 850. Because future delinquency is related to ratings, lenders are concerned about them. The following are the ranges and chances of future delinquency as seen on bureaus.

Exceptional—800 and above: It’s quite rare for individuals with credit scores of 800 or more to become severely delinquent in the future.

Excellent—a score of 740 to 799: Only two percent are expected to become severely delinquent in the future.

Good—670 to 730: Around 8% are expected to become severely delinquent in the future.

Fair—580 to 669: Around 28% are expected to become severely delinquent in the future.

Approximately 61% of people with a score lower than 579 are likely to become seriously delinquent in the future.

Credit Score Ranges

Nobody knows the exact formula for calculating your score (except those that write it, of course). However, after looking at hundreds of credit reports, we have a good understanding of what contributes to the rating.

The following are the components that make up credit scores:

Components of Credit Scores

  1. Payment history: 35%. If you’ve always paid your bills on time, your credit score will improve. Delays or cancellations in payments will have a negative impact on your credit score.
  2. Your debt-to-credit ratio: 30%. The amount you owe on credit and debt in relation to the total amount of credit you have available, should be 30% or lower. This percentage is determined by your balances (the total amount of credit you’re using) compared to your utilization (the lower the number, the better). An ideal debt-to-credit ratio is below 30%. If your credit limit on one card is $1,000 and you owe $950, you have a 95% utilization; whereas, if your balance is $250, you have a 25% usage. Even if you pay all of your bills on time (which is admirable), lenders become nervous when your balances are approaching their limits because to the fact that your capacity to pay seems to lessen when there is a sudden income loss.
  1. Length of credit history (the longer the better): 15%. Because past conduct is a good predictor of future behavior, the scoring algorithms look back and analyze how long you’ve had credit, including your oldest and newest accounts. In general, it’s preferable to have a longer credit history than a shorter one.
  2. Types of credit (mix of credit cards and installment loans): 10%. The sort of credit is also a consideration. Scoring methods examine the number and type of credit cards and installment loans available, as well as the similarities between them. Do you have all retail cards or all revolving accounts, for example?
  3. New applications and inquiries: 10%. Also, a lender looks at how often you request credit. If you get too many hard inquires, it will lower your credit score. Because people think they’ll get a “deal or discount” on their purchases during the holiday season, lots of them open new cards.

If you are in the middle of buying a new house, opening new credit cards is not the best idea. Now, whether or not your loan officer pulls your credit before closing, he or she may very well suggest that you open a new card to improve it. This should be discussed with your loan officer.

You may be wondering, “What if I’m simply looking for a loan and different lenders are pulling my credit?” How will a soft pull affect my score? There is a difference between a mild pull and a hard pull. A soft pull happens without your knowledge, but it does not have an impact on your credit score.

These sorts of things can happen without you even realizing it. When you receive an unsolicited credit card offer in the mail, or when a prospective employer does a background check on you, are two examples. The second most popular one is when you access your own credit report, or if you’re working with a certified finance company to get “credit ready” so that you may buy something. These events will not have any impact on your credit score.

A “hard pull” will lower your score. When looking for a loan, you may speak with several lenders and contact many different financial institutions. Your credit is pulled by a lender to verify your scores, which are known as hard pulls. The time it takes to shop for rates varies between fourteen and forty-five days.

The credit bureaus recognize that you are looking for other options. The pulls may remain on your credit report for two years; however, only one year’s impact on your score will be seen. So, if you’re looking around, doing it within the one-year grace period is ideal.


The amount of money a debtor has at their disposal to deal with current and future “new home loan” debts is referred to as financial capital. It’s usually simpler for borrowers who have a down payment on a property to secure a mortgage.


A buyer’s capacity to repay a loan is measures by the lender through their current income and recurring debts. The DTI (debt to income) is calculated by taking the total of all the current recurrent debt + new house payment, including taxes, insurance, home owner association fees, etc., then divided it monthly gross income.

The lower your DTI, the more likely you are to be granted a loan. While all lenders are different, they usually stick to the agencies’ standards and prefer DTIs of less than 41-45 percent. Minimum monthly credit card payments, installment loans (automobiles, recreational vehicles), alimony, student loans (even if in deferment), child support, personal loans, and other home loans you may continue to keep (such as an investment property or second home) are all examples of recurring debt.


The value of the property that is being purchased is known as collateral. This is determined by the appraisal that the lender will request. The lender must ensure that you are paying a fair price for a home. Most realtors’ pricing reflects what they believe to be a proper price range, based on a comparable study.

Consequently, if you bid higher than the listing price, the seller might back out of negotiation or–if other recent sales support your offer–your realtor may be able to help appraisers see why your offer is justified. Lenders typically won’t let you argue the appraisal amount later on.

The mortgage lender will also assess whether the buyer has had a foreclosure or bankruptcy in the past and how long ago. Each loan program has its own set of standards. In addition, the lender will evaluate employment history, as well as whether the buyer has a steady job and what type of money they make.

The Loan Procedure

What should you do now that you’ve decided to have fairly great credit, saved a bit of money, paid your bills on time, and have a steady job? What are the steps to getting that elusive loan?

The first step is to contact your loan officer and obtain preapproval, rather than simply being prequalified.

Preapproved vs Prequalified

Many people conflate preapproval and prequalification. Unfortunately, the terms are not interchangeable. You must check to see whether you have been preapproved. Prequalified simply implies that your loan officer conducted a credit inquiry and asked you certain questions based on your responses. They determine whether you are prequalified based on your answers and your credit report, and they send you off with your real estate agent to look at houses.

There have been numerous instances when a realtor has phoned me to “rescue the day,” telling me that someone was prequalified but that when the file was submitted and reviewed by an underwriter, the buyer was denied. Why does this happen? Because all of the papers were not thoroughly examined by the loan officer before being turned in. This is why working with a seasoned loan officer is so beneficial.

When a loan officer preapproves someone, it indicates that they have looked through all of the necessary documents and the credit report thoroughly. So, what are those papers?

What Documents Will I Need from My Loan Officer?

Income Documents

It is the lender’s duty to assess the borrower’s financial stability, sufficiency, and probability of continuation. As a result, the first step is to figure out what sort of income the borrower receives: wage, hourly, commission, piecework, self-employed, disabled persons’ payments (social security or disability), non-taxable earnings, or retirement benefits.

If you are receiving any sort of fluctuating income, such as commission, overtime, part-time employment, or self-employment, it is deemed stable and useable after two years. To be considered stable, the income must also be constant or growing.

Typically, lenders take this sort of income into account. However, if the revenue has dropped over the previous two years, we may not be able to average it and, in many situations, may not be able to use it. To verify this income, your lender will demand at least thirty days’ worth of pay stubs (especially if self-employed), as well as previous two years’ W2s or tax returns (particularly if self-employed).

If you’re self-employed, you’ll likely file a Schedule C or have corporation documentation. Your lender will need the entirety of your Federal tax return to gain an understanding of what income can be qualified. However, there are specific elements, such as business miles driven or business use of living space, that may be added back into your net income. Generally speaking, you need to have been in the self-employment game for at least two tax years before using the income; this is due to the nature of variable self-employment income and its lack dependability from one year to another.

The income from the previous two years is usually averaged together. In addition, a lender may not be able to utilize a 20% or more decrease in your earnings for the last several years if you have had one. There are some programs that allow you to utilize the most recent year’s income for self-employment as long as you’ve been in business for at least five years and can demonstrate it, such as an original license.

If your newly acquired retirement, disability, or other types of nontaxable income is guaranteed for at least three years, it does not need to have a two-year history. 

Officers get this question a lot, “Do I have to work for two years in the same field?” The answer is no. If you are changing jobs to pursue a higher-paying career or an hourly wage, as long as we can verify it and receive 30 days of documentation, you should be fine. Remember that we also look at your employment history. Are you constantly switching jobs because of advancements, using your education, or otherwise having a good reason? Acceptable reasons for job changes are OK. We also make sure there aren’t any gaps in employment over the previous two years.

Great news for students who are now employed and looking to purchase a home – you do not have to be employed for two years as long as you can provide the proper documentation.

Asset Documents

The lender is responsible for verifying the asset documents and ensuring that everything is in order. We will review all asset documents from the last two months, looking for any deposits that are not payroll-related. All large deposits must be fully documented as to their source. Each loan program has slightly different definition of what constitutes a large deposit, so it’s best to speak with a loan officer before making any non-payroll deposits.

With a typical loan, for any single non-employment deposit that is less than 50% of the qualified monthly income, we will not need further documentation. We may only require documentation for other types of loans. Additionally, we’ll check to see if there are any insufficient fund expenses. We realize that mistakes sometimes occur and, as long as you have provided a correct explanation, everything should be okay. However, if you frequently have charges like this or they keep happening over time , it could suggest to lenders that your overall finances aren’t being managed correctly .

We’ll look at everyone else on the bank statement who isn’t a borrower. Because we will be using these funds, the “non-borrowing” co-owner of the account will be required to sign a letter stating that they understand the money is being used for a loan.

We must also keep an eye on gift money. Gift cash is handled differently by each loan program. We must ensure that all gift cash originates from a “qualified” donor, usually a family member but not always.

Furthermore, on many programs, we’ll need a copy of the donor’s bank statement that demonstrates that they had access to the funds to give. They will also sign an agreement stating that the cash is in fact a gift and not obligated to be returned. Before you put any gift money into your bank account, contact your loan officer and follow the necessary steps.

A loan officer may not be willing to accept gift money if it is the only type of cash offered, even if you have excellent credit and don’t need the funds for a few days. Depending on the rest of your profile, gift money might be looked at unfavorably by the lender. The lender will look at other factors more closely, such as your credit score, additional obligations, and debt to income ratio, among others, if you don’t have any of your own cash saved and all the money is given as a gift. When a borrower fails to make their monthly payments when an emergency arises owing to a lack of personal funds or other resources to pay their monthly bills

Retirement papers are rarely required until we use the money for a loan or if a reserve is required. If retirement funds are required and the borrower is not of retirement age, the lender will also want documentation that specifies “terms and conditions” under which the cash may be taken out. All of them have slight differences. The good news is that if you borrow money from your retirement plan and subsequently are put on a payment schedule to pay it back, we don’t have to count it against your overall debt to income since it is your own money.

Other Documents

Even if you are not self-employed, lenders sometimes want the most recent two years of tax returns. Because we must verify that nothing else in the return raises a warning, such as a part-time business that you are deducting as a loss or rental revenue loss.

If you have been divorced in the past seven years, a lender may request a copy of your divorce judgment. The lender must confirm that you are not under any obligation to pay spousal or child support, a share of the sale of property, or debt repayment.

Do you have a child support order? If so, the lender will require it, as well. You won’t need the document if your divorce decree states that your spouse is obligated to pay and you are not making use of the income (on most loans). The lender will need to see that you have received it on a regular basis in order to count it if you are receiving child support and wish to use it for qualification.

For some loans, you’ll need to provide a copy of your last three months’ worth of receipts, while others will require a copy of your last six months’ worth. You’ll also be asked to show that the business will operate for at least three years after the closing date.

Do you own a vacation or second home, or do you have property for sale or rent? If that’s the case, you’ll need proof of your mortgage payments, taxes, insurance premiums, and any homeowners association fees. You will most likely have a Schedule E with your return if you’ve owned an investment property in the prior year. If this is the case and your lender can compute whether it may be credited as income or subtracted from debt, she might accept it instead of the listed items. However, what you report on your tax returns during the previous two years will be validated.

You will need a copy of your certificate of eligibility, or at the very least your DD-214, if you are using a VA loan to prove that you are qualified.

You should also be aware that lenders do a credit check on homebuyers. A qualified loan involves following all agency rules. The last thing a lender wants is to have a loan in default because they didn’t conduct adequate research up front. This may harm the lender’s capacity to offer future financing.

During the loan process, your lender will continue to monitor all of your finances. Even after the closing date, they may want to update certain papers since documents become outdated after a while. The lender might even check your employment that day to ensure you are still employed if you’re thinking about making any job adjustments or major financial transactions that will affect your current balances or require you to open new credit.

Although some individuals think they are helpful by getting another credit card with a lower interest rate and transferring their balances, this action will actually trigger the lender to request more documentation from you in order to verify that you are not taking on any new debt. Here are some basics thoughts for your reference.

Documents from Loan Officers

When purchasing a home, there are certain rules and regulations to follow.

Loan officers look at everything for the previous two months, as well as throughout the loan application process. With your money, make this the most tedious part of your life.

Costs of Acquiring a Loan

At the closing, a buyer must bring three buckets of money. The down payment is the first, and it is determined by the loan product.

The second bucket is reserves and prepaids, which include interest charges from the day you close until the end of the month, one year’s homeowners insurance, and an escrow for property tax and home insurance to pay future expenses.

Closing costs are the last bucket. Closing costs are incurred by anybody who has anything to do with your loan, regardless of whether they’re a bank or an insurance underwriter. Appraisers, origination and underwriting fees, title and escrow agents’ fees, recording charges, and credit reports and monitoring are just a few examples of these expenses.

If you’re going for a loan, it’s vital for the loan officer to pick the appropriate program so that you will have enough money for the process. In addition, most loans necessitate that you set aside additional cash, known as reserves, in order to cover at least one month’s worth of future house payments. The lender wants assurance that if an emergency occurs, you will be able to pay your debts.

Types of Loans

The loan officer assists in the selection of the best loan program for you. Loans come in a variety of shapes and sizes.

There are four primary sorts of loans, as well as hundreds of additional variations. Now the question becomes, which type of loan should you take? This is where your loan officer makes his or her money. They must be knowledgeable about all types of loans and determine what would work best for you.

Types of Loans


Many people still believe that you must put down a 20% deposit for a standard mortgage. That isn’t correct. You can go as low as 3 percent if your income permits it, and 5% is the bare minimum required even if you don’t meet the 3 percent down program. However, should you put less than 20% down, PMI will be required of you.

The PMI is a safeguard for the lender. It’s also a cost to borrowers. However, it does allow you to get into a house with less than 20% down payment. This is a safety net for the lender in the event that you go into foreclosure. If you fall behind on your payments, this won’t protect you. The fee of PMI will differ based on how much money you put down and your credit score.

This insurance is paid out monthly, and when your equity based on payments reaches 78% of the purchase price, the PMI payments should cease. Let’s assume that your home appreciated in value and that it is now worth more. Can you cancel your PMI if this occurs? Maybe.

You could refinance if the value increased, and your new loan would not include PMI. However, if you don’t want to refinance, you’ll have to go through some hoops because it isn’t automatic. You may be asked to pay for an appraisal that will be performed by the lender or servicer.

You generally need to submit a cancellation request in writing. You must make all of your payments on time. You could be required to show that you do not have any prior liens on the property. Furthermore, you may have been required to make at least twenty-four monthly installments before paying for the appraiser. Contact your lender or servicer and inquire about their requirements for removing PMI before the typical time frame.

PMI may be paid monthly (which is the most of the time), in advance, or a combination. This is where your loan officer will explain these choices with you. Typically, if you pay up front, you won’t get any money back if your property value rises. It does imply that you won’t have to pay this fee every month; it also lowers your debt-to-income ratio and might qualify you for a bigger property.

A conventional loan requires a minimum credit score of 620.

A property valued at less than $200,000 may be eligible for a zero percent mortgage. Loans can be used to finance primary, secondary, or investment properties with an estimated value of between $200k and $4m. A commercial (nonresidential) loan is required for any property with a value greater than $4m.

The seller can be requested to pay for closing and prepayments, but the amount they may claim is limited by the proportion of a down payment they provided. A primary house might cost between 3% and 9% of the property’s sales price, while an investment property will cost 2%.

After bankruptcy 7 discharge, or two years with an acceptable extenuating circumstance, borrowers must wait four years for a standard loan. It’s four years following discharge date or two years following termination date. You must also rebuild your credit during that time period.

If you obtained a home equity loan, you must wait seven years from the date of foreclosure or three years under extenuating circumstances, and an additional down payment is required. It’s four years from the close of a short sale, deed in lieu, or mortgage charge off to receive a new owner or two years with exceptional circumstances.

A nonrecurring event beyond the borrower’s control that resulted in a sudden, significant, and prolonged reduction in income, or a catastrophic increase in financial obligations is considered an extenuating circumstance for a regular loan. It must be confirmed and documented. Divorce is not taken into account as an extenuating circumstance.

FHA Mortgage

The Federal Housing Administration (FHA) is a government-sponsored lending program that provides easy access to low-interest loans for those who are looking to buy new homes or refinancing their existing one.

FHA loans are government-backed mortgage insurance by the Federal Housing Administration or FHA. The Department of Housing and Urban Development’s (HUD) FHA is a branch of this agency. 3.5 percent is the minimum down payment requirement. MIP, or Monthly Insurance Premium, is an optional extra that may be paid at any time for certain FHA loans with a minimum down payment of $3500 rather than being based simply on the amount of money put down, as it is with conventional financing.

Unlike traditional loans, this cost does not go away if you make less than the minimum 3.5 percent down payment. It is payable for the life of the loan. So, the only option to get rid of it is to refinance into a normal mortgage or sell the property and close the loan, or pay off the debt.

FHA adds an up-front financing fee of 1.75% of the loan amount to your base loan, which is paid by you. This fee finances the FHA program for defaulted loans.

The FHA technically allows a borrower to have as low as a 500 credit score with 10% down, which is less restrictive than conventional lending. However, because this program is too dangerous for many lenders, it will not be offered. The lowest credit score a lender will accept is typically between 580 and 620, although each lender’s risk tolerance varies somewhat. In these situations, your minimum down payment will be 3.5 percent.

On this sort of mortgage, you may ask the seller to pay up to 6% of qualifying closing and prepayment costs. This might restrict your out-of-pocket expenditures and enable additional purchasers to buy a house. In many cases, your realtor will demand that you increase the amount you offer to the seller by the amount you are requesting in concessions.

So, for example, if you are purchasing a $100,000 property and asking the seller to pay 6% towards closing expenses and prepaids ($6,000), your realtor may suggest that you offer $106,000 so that your bid remains competitive with someone who offers $100,000 with no concessions.

The concessions are calculated as a percentage of the seller’s gross sell proceeds at closing, so if you didn’t raise your offer, the seller is receiving only $94,000 rather than the asking price of $100,000. To compare apples to apples in this case, I’m taking away all typical expenses that the seller pays. Even though your purchase price has increased, the monthly payment difference is typically worth it when you consider cash savings.

FHA loans are only available for primary residences and you can only have one at a time. A second is allowed under certain circumstances, such as when you have an FHA mortgage and are relocated more than 100 miles away for employment and need to buy another home. If you don’t sell your current property first, you’ll be required to fulfill both obligations in addition to all of your other debts.

The property must be appraised by an FHA-approved valuer and satisfy HUD (Housing and Urban Development) property standards. When you do your first inspection on the house, your inspector will be familiar with the HUD standards and may suggest whether or not the appraiser will request any repairs. Traditionally, if a home is purchased using FHA financing, the seller has agreed to make any required repairs as specified by the appraiser.

If you have any questions regarding the cost of a home inspection, please contact us. Under certain conditions, an appraisal can take up to three months to complete. The repairs must be completed before the loan can close. Before payment is made, the buyer pays an examination fee that usually IS known ahead of time. If weather prevents repair work from being done, the lender may keep in escrow approximately one and a half times the highest bid until it is done. This money acts as security for both the lender and buyer if something goes wrong with the project and the lender is able to locate someone else to conduct the service and has sufficient cash on hand do so.

One to three bids are customary, and the highest bid is used for escrow. The lender will pay the vendor who did the job and reimburse the difference to the party that had funds withheld after he or she is certain the work has been completed.

In addition, because most escrow holdbacks are associated with lending, the buyer is usually required to pay a fee for this service and will be notified, and it will be stated on the closing statement. Because escrow holdbacks are hazardous, not all lenders allow them, and most only allow them if the weather prevents work from being done on an outside building.

Borrowers must wait two years after bankruptcy and three years after a foreclosure to apply for an FHA loan. They must also rebuild their credit during that time. If the time limit is shortened as a result of exceptional circumstances like a serious illness or the death of a wage earner, it is not unusual. Divorce or inability to sell a property due on account of a job transfer or relocation are not taken into consideration as extenuating circumstances.

USDA’s Rural Development (RD)

If you’re looking for a USDA-approved loan to purchase a home in the “country,” this may be the program for you. This is a USDA-backed zero-down loan (United States Department of Agriculture and Rural Development). You’ll still need cash for closing costs and prepays, but you may request that the seller reimburses up to 6% of the sales price towards those expenditures.

In theory, you may be able to move into a new house for little to no money. This scheme is meant to help lenders by providing low-cost homeownership alternatives for people in rural areas with modest or moderate incomes.

This loan is also available to first-time homeowners. At the closing of the new loan, the buyer cannot already own a primary residence.

There are a few more conditions, such as household income must not exceed a certain amount, which is determined by your nation’s location. Check with your local lender to see what the limit is in your region. Even if you are not on the loan, the lender must take into account all income toward these limits since it affects everyone in the family. A lender does not have to include their earnings if you are a full-time student over 18 years old who isn’t married to the buyer and is studying full-time.

There are also some asset restrictions. If the buyer can afford to pay 20% down and buy the property, they will not be eligible.

To see if the property you’re looking at qualifies, go to:

Visit the following website to learn more about your eligibility:

Property Eligibility

If you’re looking for a low-cost mortgage loan, a Rural Development loan may be a good option for you. RD loans have a monthly funding fee of just .35% of the loan amount, and an up-front fee of 1% that is added to the loan amount. This makes them much more affordable than FHA loans, and often cheaper than conventional loans. 

A buyer with a credit score of 620 or below is considered low risk, though realistically, depending on the buyer’s assets and other factors, it will usually necessitate a higher score. RD has its own modeling approach that lenders must go through in order to check if all the criteria are satisfied. For example, does the potential buyer have reserves (remember that it’s possible with full concessions and no down payment to essentially bring nothing to close), or do they have a track record of making timely rent or house payments? Before offering you a preapproval, your lender will run some tests through the automated system.

If you have gone through a debt or foreclosure, you may still be able to qualify for an RD loan. However, you will need to wait at least three years after the bankruptcy is discharged or the foreclosure is completed. During this time, you must also re-establish positive credit history. There are some circumstances where the waiting period may be shortened. If you can show that the bankruptcy or foreclosure was due to extenuating circumstances beyond your control, you may be able to get approved for an RD loan sooner. Examples of such events include job loss, government benefits reduction, or increased medical expenses.

VA Loan

A VA loan is backed by the U.S. Department of Veterans Affairs (VA). The loan is available to veterans, active duty military personnel, and their spouses who qualify. The VA does not lend the money for the mortgage, but they back or guarantee up to the maximum allowable 25% of the loan. VA loan guarantees that the lender will not have to bear the entire risk of loss if the borrower defaults on the loan.

The private lenders make the loans. The warranty means the lender is protected against loss if the owner later defaults. This guarantee replaces the protection the lender normally requires with a down payment or private mortgage insurance. So, the biggest benefit is no down payment private mortgage insurance.

If you are a military member or veteran, you may be eligible for a particular type of loan called a VA loan. VA loans are specifically designed for those who have served in the military and can offer some great benefits. Eligibility is defined as people who served on active duty and have a discharge, other than dishonorable, after a minimum of ninety days of service during wartime or 181 continuous days during peacetime.

For personnel who began their service after September 7, 1980, or were officers who began duty after October 16, 1981, there is a two-year requirement. For United States National Guard and reservists, there is a six-year requirement. Certain criteria and specific rules concerning the eligibility of surviving spouses apply to both groups.

As mentioned, a buyer must have decent credit, income to qualify, and a valid certificate of eligibility. The home must be used as the primary home. The VA doesn’t have specific credit score requirements; however, the lender usually requires a middle score between 600 and 620. This depends on each lender.

VA loans also have upfront funding fees that funding fees can roll into the loan. The funding charge is a percentage of the loan amount, which varies based on the type of loan and the military category, whether you are a first-time or subsequent loan user, and whether you make a down payment. You do not have to pay the charge if you are a:

  • Veteran receiving VA compensation for service-connected infirmity 
  • Veteran who would be entitled to receive compensation for a service-connected disability if you did not receive retirement or active duty pay 
  • Surviving spouse of a Veteran who died in service or from a service-connected disability.

Some banks require borrowers to have a certain monthly income after all significant debts and obligations are paid (residual income). This ensures that borrowers and their families will have enough money to cover basic living costs (food, transportation, child care, etc.). The required residual income varies depending on family size and where in the country they live.

A VA-approved appraiser conducts the appraisal for a Veterans Affairs (VA) loan. There are minimum property requirements primarily safety issues, such as lead paint, location near a high voltage transmission easement, or specific water connection issues. The appraiser will follow the basic guidelines and report any required repairs based on the requirements. The appraiser will also take into consideration the property’s value when deciding on whether or not to recommend the loan.

For borrowers who have gone through a Chapter 7 bankruptcy, the waiting period is two years. However, if credit is re-established and the bankruptcy was caused by extenuating circumstances, you may be able to apply for a loan between twelve and twenty-three months after the bankruptcy is discharged. For borrowers who have gone through a Chapter 13 bankruptcy, the waiting period is one year from the date of discharge. To be eligible for a loan, you must have made all required payments on time and your payment history must be satisfactory. If you’ve gone through a short sale or foreclosure, the waiting period is two years. 

The one-year payout and three-year waiting period are known as the “”seasoning”” period. During this time, the borrower must re-establish a positive credit history to qualify for a new loan. Extenuating circumstances like unemployment or medical bills not covered by insurance may shorten the seasoning period. However, divorce is not considered an extenuating circumstance.

Other Requirements for Government Loans (FHA, VA and RD)

You need to have a clear CAIVRS or Credit Alert Verification Reporting System report to qualify for a government loan, and you’ll also need to maintain a good credit score. A high credit score is essential because it indicates to lenders that you’re a responsible borrower who will likely repay your debts. If you have a minimal credit score, it could make it more challenging to qualify for a government loan.

If your delinquency is now paid in full, or you are enrolled in a federally-funded approved repayment plan, you may still be eligible for a government loan. However, for example, if you had a defaulted FHA loan, you would have to wait at least three years before applying for another government loan since the government pays the lender back on the insured loan.

Specialty Certified Mortgages

There are also specialty loans like rehabilitation and new construction loans. These are loans available that allow you to “roll in” the costs to repair a home. Rehab loans are designed to help homeowners improve their existing homes or purchase a home that can benefit from upgrades, repairs, or complete renovations.

If you’re looking to purchase a home that needs some work, a construction-to-permanent loan may be right for you. With this type of loan, you’ll finance the cost of the improvements into one single loan, rather than having to apply for a second mortgage or line of equity. This can be a convenient and economical way to finance your purchase, especially if the house is not currently up to standards to pass an appraisal. However, with a construction-to-permanent loan, you’ll be able to obtain the home you want through a single-close mortgage. The loan amount is based on the future completed value of the property rather than the current value.

Home Style Loan

HomeStyle Loans are intended for properties that will be owner-occupied as either a primary residence, a second home, or an investment property. These loans are not intended for properties that will be flipped. The credit score requirement is higher for HomeStyle Loans, typically 640 or higher. However, this loan program can be used for both investment and rental properties. Eligible properties include single-family homes, two- to four-unit dwellings, and condominiums and townhomes. Manufactured homes are also eligible for HomeStyle Loans, as long as they are permanently affixed to a foundation.

The HomeStyle Renovation Mortgage is a great financing option for borrowers considering home improvements. With a first mortgage, rather than through a second mortgage or other more costly methods of financing, repairs and renovations can be made conveniently and flexibly. 

The limit on allowed renovation funds is 75% of the lesser of the purchase price plus renovation costs, also called the “as-completed” appraised value. Usually, any type of renovation is eligible as long as it is permanently affixed to the property. Renovations should be completed within six to twelve month period. 

The buyer will choose their contractor and must have a contract with the contractor. Plans and specifications must be prepared by a registered, licensed, or certified general contractor, renovation consultant, or architect. The procedures and specs should comprehensively describe all the work and provide an indication of when various jobs or stages of completion will be scheduled, including both the start and completion dates.

When submitting the plans to the lender, the contractor has to be specific on the timeline. Renovations must be completed within six months of closing, and any energy improvements must meet program guidelines.

Whether or not to allow DIY work is up to the lender, and there are conventional guidelines in place that state that up to 10% of the completed value can be done by the borrower. Inspections may be required for all work items that cost more than $5,000. It is essential to check with your lender before beginning any work to ensure that it is allowed and that you will not run into any issues down the road.

Specialty (203k Using FHA loan)

The FHA version of a rehab loan is called a 203k. Like the conventional version, you must hire qualified contractors.

There are two versions of the 203k, standard (or regular) and limited (or streamline). The normal or standard is used for properties that need structural repairs or for total improvements over $35,000. Buyers can do the following on a traditional rehab program:

  • Room addition to a home
  • Gut rehab
  • Add a second floor
  • Structural changes
  • Major landscaping
  • Repairs and remodels
  • Heating and cooling systems
  • Roof, plumbing, decks

       : And so much more

As you may know, the 203k program is a government-backed mortgage insurance program that allows borrowers to finance the purchase or renovation of a home. The program will not cover luxury improvements, like adding a pool or tennis court to the property. It also cannot include any improvement that does not become a permanent part of the property. A standard 203k, you will also be required to hire a certified HUD consultant to oversee the project. The fees are determined by HUD and can be seen at:

Single Family Mortgage Insurance

So how much can you get? On a regular 203k, the minimum is $5,000 and the maximum is the lesser of these two amounts:

110% of the after – improved value.

A streamline loan is a great option if you’re looking to purchase a home with minimal repairs. With this type of loan, you can get the home for the purchase price plus up to $35,000 with no minimum repair cost. Plus, the cost for energy improvements is also covered. Keep in mind that the type of work that can be done with a streamline loan is much more restrictive. There can be no structural changes, room additions, or luxury improvements. Work that is permitted includes: painting, repairs to the roof, gutters, and downspouts, flooring repairs and replacement, window and door repairs and replacements, and other minor repairs and improvements.

  • Kitchen and bath remodeling
  • Finishing an attic or basement
  • Roofing and new windows
  • Repairs that are not structural
  • Patios and porches
  • New siding weatherization
  • Updating mechanicals
  • New appliances

If you’re looking to purchase a home in need of some repairs or renovations, the USDA Rural Development rehab program may be a good option for you. The regular RD loan requirements still apply, but this program allows you to finance the cost of repairs or renovations with a single loan. Just about any type of work is allowed, as long as the maximum repair amount is not exceeded. The work must be done by a general contractor. With the USDA Rural Development rehab program, you can finance your renovation with only one monthly payment and zero percent down.

A streamline are repairs from $1,000 to 10,000 and using only one contractor, and must be done in thirty days.

A full is between $1,000 and $32,000 of repairs with one general contractor and up to three sub-contractors, and up fifty-nine days to complete

Health and safety issues, HVAC, roof gutter, plumbing, weatherization (windows and roofs), minor nonstructural remodeling are allowed repairs. You can add appliances if you have at $3,000 of basic repairs. Ineligible improvements include cosmetic items, decorating items, structural repairs, room additions, garages, pools/hot tubs, and landscaping.

There is a contingency reserve of $750 or 15% of repair costs, whichever is greater, and can be financed or paid in cash.

New Construction Loan

A construction to permanent loan is a loan where you borrow money to pay for the construction costs of building the home. Once the home is complete, the loan is converted into a permanent loan. Because this is basically a two-in-one loan, meaning you close once, your closing costs are reduced, saving you money.

During the construction of your property, you only pay interest on the outstanding balance. You don’t have to worry about paying principal yet. Once the building is complete, it becomes a permanent mortgage. Conventional, FHA, RD, and VA all have versions of a new construction “single-close loan.”

When it comes to construction loans, not all banks or financial institutions offer them. This is because construction loans are more risky than traditional loans. In order to qualify for a construction loan, you’ll need to provide the lender with documentation proving that you’re qualified for the project. The lender will also need to see builder requirements. Some of the things the lender will need before proceeding are listed below.

  • Adequate description of the intended materials to be used
  • Resume of the builder showcasing past history of building houses
  • References from the builder
  • Copy of the credentials of the builder including, but not limited to, licenses, insurance, personal tax returns, and proof of adequate liability insurance
  • A final copy of the building plans
  • A written budget
  • Contract detailing all of the construction to be done, signed by the builder and buyer
  • Proof of ownership of land and whether owned by builder or buyer
  • Any other lender specific required documents

Bond Loans

If you’re a low- to middle-income earner looking to purchase a home, you may be eligible for a bond loan. Bond loans are issued by state and local authorities and typically subsidize the cost of becoming a homeowner for those who meet certain income and asset qualifications. Usually, bond loans come with lower interest rates and/or offer cash assistance. They are generally provided by state or local government agencies, and each program has its own set of guidelines. If you think you might be eligible for a bond loan, check with your lender to see if any are available in your area.


Condo loans can be more challenging to obtain than other types of mortgages, due to the added risk for the lender. In order to qualify for a condo loan, not only does the individual borrower need to meet the requirements set forth by the lender, but the condo association as a whole must also qualify. This is because the lender is taking on additional risk by lending money to purchase a condo unit, as opposed to a single-family home. There are a number of different government agencies that have set forth guidelines for condo loans, including the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and Freddie Mac and Fannie Mae.

For FHA, the condo must be on the FHA approved condo list. For conventional, the lender has to verify the financial health of the association. Lenders need to see at least 85% of HOA dues paid on time, adequate and appropriate insurance for the association, adequate budget reserves, no pending litigation that could result in costly legal fees and lawsuits, and a limited number of units owned by one person or entity.

VA has its own approved list: 

VA Loan Guaranty

RD will usually allow a condo if it is approved by one of the other agencies. If you can finance a condo with one of the standard programs, it is considered a warrantable condo. There are lenders that will finance non-warrantable condos, however, they fall into the non-QM loans.

Non-qualified Loans

A non-qualified mortgage is a loan that does not comply with the qualified mortgage rules. These loans generally do not fit into one of the standard conventional FHA, RD, or VA loan programs. Non-qualified mortgages typically require a higher credit score, income, or assets than a qualified mortgage. They may be more expensive for borrowers because they often come with higher interest rates and stricter underwriting standards. However, they may be the only option for borrowers who do not meet the qualifications for a qualified mortgage.

Non-QM loans may be the right choice for borrowers who don’t fit into the “standard” lending boxes. These loans often come with higher rates and fees, but they can provide much-needed financing for those who might not otherwise qualify. If you’re thinking about applying for a non-QM loan, it’s crucial to understand how they work and what the potential risks are.

If you have recently gone through a bankruptcy, foreclosure, or short sale, you may wonder if you will ever be able to rebuy a home. The good news is that programs can help you qualify for a mortgage, even with less than 20% down. These types of loans are sometimes called non-qualified mortgages, and they can be an excellent option for those who cannot qualify for a traditional mortgage. The most significant advantage of these loans is that they do not require PMI, or private mortgage insurance. This can save you hundreds of dollars each month on your mortgage payment.

Interest Rates of Loans

Now that you have chosen your loan program, what about the interest rate? That seems to be the first question everyone asks, yet it is not the most crucial question. When you see rates quoted, usually they are for a larger loan amount, 20% or more down, and a credit score of 780 or better. Most people do not fall into this category, so your lender needs to put you in the correct program with the proper down payment and monthly payments.

Interest Rate or APR?

An interest rate is simply the amount of money that you will pay each year to borrow the money, expressed as a percentage rate. An annual percentage rate (APR) is a wider measure of the cost to you to borrow the money. In general, the APR includes not only the interest rate but also any points, fees, or other charges that you pay to get the loan. For this reason, your APR is usually higher than your interest rate.

What Type of Interest Rate?

Fixed-rate mortgages are the most popular type of home loan. They offer borrowers a set interest rate and monthly payment for the life of the loan, usually 15 or 30 years. The main benefit of a fixed-rate mortgage is that it offers predictability and stability for your budget. You know exactly how much your monthly mortgage payments will be, making it easier to plan your finances. Shorter terms usually come with lower interest rates, but your monthly payments will be higher because you’re paying off the loan in a shorter time.

To pay off your mortgage early, you need to make sure that you are making extra payments towards the principal of your loan. This will result in less money being paid for interest over the life of the loan. You can effectively do the same with a thirty-year mortgage by paying it off like a fifteen-year loan, depending on the difference in interest rates. On a fixed rate loan, you pay the same monthly payment, but the amount that goes to principal and interest changes monthly.

The way the formula works is that, after you make your payment, it calculates what the principal balance is and computes the interest on that portion, and that is how much will be applied to interest and the balance to principal. This is why, when you pay an additional amount of money and apply it to principal, the next month more money goes toward principal.

An adjustable rate mortgage (ARM) has an interest rate that changes or adjusts over time, based on a formula. This means your payment can go down or up. Generally, the initial interest rate is lower than a fixed interest rate. For example, you might see a 5/1 ARM. This means the introductory or initial rate is good for five years and then the interest rate can change every year after that. You can see 3/1, 7/1, or 10/1 ARMS offered. ARMs can be a good option if you plan to sell your home before the interest rate adjusts upward, or if you are comfortable with the idea of your payments going up or down based on changes in market rates.

The interest rate on an adjustable-rate mortgage (ARM) is based on an index, which is an interest rate set by market conditions and published by a neutral party. The lender takes the index rate and adds an agreed-upon number of percentage points (the margin) to set the ARM rate. With an ARM, your interest rate may go up or down over time, depending on changes in the index rate.

The index rate on an adjustable-rate mortgage (ARM) can change over time, but the margin stays the same. Most ARMs are tied to one of three indices: 1) the One year Treasury Bill; 2) the 11th District cost of funds index (COFI), which is the interest financial institutions pay on deposits; or 3) the London Interbank Offered Rate (LIBOR), which is the rate most international banks charge each other on large loans. The LIBOR is being phased out in 2021.

When you have an adjustable-rate mortgage (ARM), your interest rate is tied to an index. The most common indexes are

the Constant Maturity Treasury (CMT) Index,

the Cost of Funds Index (COFI), and

the London Interbank Offered Rate (LIBOR).

Your margin is the percentage added to the index to determine your new interest rate, and generally runs between 2% and 4%. For example, if the index averages 4% and your margin is 3%, your rate will adjust to 7%. The index plus margin is the fully indexed rate. Margins are added for profitability to the lender because indexed rates are usually very low-interest rates.

If you’re considering a variable rate mortgage, it’s important to understand how rate caps can affect your loan. Rate caps are designed to protect borrowers from large, unexpected increases in their interest rates.

There are three types of rate caps: periodic, lifetime, and payment.

Periodic rate caps limit the amount that the interest rate can increase from one year to the next. This type of cap is common with adjustable-rate mortgages (ARMs).

Lifetime rate caps limit the total amount that the interest rate can increase over the life of the loan. This type of cap is less common, but can provide some protection against rising rates.

Payment caps limit the amount that the monthly payment can increase over the life of the loan. This type of cap is less common, but can help to keep monthly payments affordable.

One important warning is that if the index goes up more than the cap amount in one year, the interest rate can continue to adjust the next year even if the index hasn’t moved since the last adjustment.

This can significantly impact your monthly payments, so it’s important to be aware of how your interest rate could change over time. If you have an adjustable-rate mortgage, your interest rate will fluctuate following changes in the index.

Your interest rate will increase by .5% in the first year, or as much as the periodic adjustment cap allows. In the following two years, your interest rate will rise by .5% each year until it reaches the index plus margin account. This gradual increase gives you time to adjust to higher payments if necessary.

Some ARMS have a floor, an interest rate below which the rate cannot go. In other words, even if interest rates decline substantially, your new rate may not go down at all.

So, for example, if your index rate is 3 percent and your margin is 2 percent, then your fully indexed interest rate would be 5 percent.

A 5/1 ARM loan is a type of adjustable-rate mortgage loan where the interest rate on the loan remains fixed for the first five years of the loan term, and then adjusts annually thereafter.

This type of loan can be good for buyers who plan on selling their home within the next few years, as it offers a lower interest rate during the initial fixed-period. However, this type of loan is riskier for the buyer as interest rates are likely to go up over time, which would increase the monthly payment amount.

Another advantage of an adjustable rate mortgage is that it might help you qualify for a bigger home. Because the initial payment is often lower, it can be easier to qualify for a larger loan. This can be especially beneficial for first-time home buyers who expect to earn more money in the future.

Some of the biggest potential drawbacks of an ARM include inconsistent payments and higher interest rates down the road. With an ARM, your initial interest rate is often artificially low. But when rates reset, your payments could go up significantly – especially if you were counting on selling or refinancing before that first adjustment.

What Is a Buydown?

Buydowns are a financing technique where the buyer gets a lower interest rate for at least the first few years. Buydowns are like a subsidy from the seller to the buyer. Typically, the seller contributes funds to an escrow account that subsidizes the loan during the first few years, resulting in initial lower payments. Buydowns usually last a few years and then the payment increases to the standard rate once it expires.

Buydowns can be an attractive option for homebuyers who are looking to keep their monthly payments low during the early years of their loan.

A 3-2-1 buydown is a type of mortgage financing where the buyer pays a lower interest rate for the first three years of the loan. This lower interest rate is offset by contributions from the seller, who subsidizes the difference in payments.

For example, let’s say a homeowner gets a 6.75% fixed interest rate on their loan. In year one, they would pay 3.75% interest, in year two 4.75%, and in year three 5.75%. After the first three years, their payment would increase to the standard 6.75% rate.

A 2-1 buydown is quite similar to a regular buydown; however, the discount only applies for the first two years. In other words, if the interest rate is 6.75%, in year one, the buyer would pay 4.75%. Then in year two 5.75%–after that, they go back to paying 6.75%.

Where to Get a Loan?

So now you have your documents, you chose a loan program with your loan officer, and decided on the best type of interest rate for you. Let’s talk about where your loan officer works and the kind of institution it is.

As a loan officer, you will work with buyers and help them choose the best mortgage program. You will also assist with the loan application process. Loan officers can work for a depository bank, a mortgage bank, or a broker. Sometimes, loan officers may have different titles, such as mortgage consultants, loan originators, loan consultants, and mortgage planners. Starting August 1, 2009, any individual who takes a residential mortgage loan application or offers terms of a residential mortgage loan application must be licensed or registered as a Mortgage Loan Originator.

There are many types of lending institutions, but the three most common are commercial banks, savings and loan associations, and credit unions. Each has its own strengths and weaknesses, so it’s important to choose the right one for your needs.

Commercial banks are the largest and most well-known type of lending institution. They offer a full range of banking services, including checking and savings accounts, personal loans, car loans, and mortgage loans. Commercial banks typically have branches all over the country, so they can offer nationwide service.

Unlike other lending institutions, credit unions are unique in that they are owned and operated by their members. This means that credit unions are not-for-profit organizations, and their primary goal is to serve the needs of their members rather than to make a profit.

Credit unions offer many of the same services as banks, including savings accounts, checking accounts, and loans. However, because credit unions are not-for-profit organizations, they typically offer better rates and terms on their products and services. In addition, credit unions often have lower fees than banks.

Both of these are direct bankers. They close and fund a mortgage with their funds. Usually, the processing, underwriting, and appraisal services are handled within the company, giving the loan officer a little more control.

Mortgage brokers play an important role in the home loan process. They serve as intermediaries between borrowers and lenders, and their main job is to help borrowers find the best possible loan terms that fit their needs.

Brokers are experts in the home loan market, and they have access to a wide variety of lenders. This means that they can shop around for the best rates and terms on your behalf. They can also help you understand the different types of loans available, and guide you through the application process.

The Actual Mortgage

Once you have collected all of the necessary documents, your loan officer will review them and issue a preapproval. Based on the information you provided, they will then begin looking for homes that match your criteria. Once you have found a house and made an offer that was accepted, the actual loan process begins.

You will be given the application in either an electronic form or printed copy to sign. This will include all of the information you provided during the preapproval process.

At this time, you and your loan officer will discuss whether or not to lock in your interest rate. There are pros and cons to both locking in and waiting, so be sure to ask about both before making a decision. You will also be asked to sign a number of documents, including the loan estimate. This document is required by the government and provides an estimate of your loan’s terms. For more information on the loan estimate, please visit:

Consumer Financial Protection Bureau

A loan estimate is a three-page document that provides you with important details about the loan you have requested. It must be provided to you within three business days of your application.

The loan estimate provides you with information such as the interest rate, monthly payment, and total closing costs for the loan. This form is important because it allows you to compare different loans and make an informed decision about which one is right for you.

When you receive a loan estimate, be sure to review it carefully so that you understand all of the terms and conditions associated with the loan.

The Loan Estimate is a three-page form you receive after applying for a mortgage. The document provides important information about the loan you have used, including the estimated interest rate, monthly payments, and closing costs. It is designed to help you compare different loan offers and choose the best one for your needs. It is essential to review the form carefully and ask any questions you may have before signing a contract.

Principal and Interest Payment vs. My Total Payment 

The principal and interest payment is your mortgage’s main component, including the amount you borrowed plus any associated fees. The interest debt does not go away and will be charged by the lender for lending you money. This cannot change unless you have a variable rate loan throughout its lifetime. For example, other monthly expenses often bundled with your mortgage include property taxes, homeowners insurance, mortgage insurance (if necessary), and flood coverage (if required).

If you’re taking out a loan to buy a home, you may be required to set up an escrow or impound account. This account is used to hold money that will be used to pay for things like property taxes and insurance.

The lender will typically pay these bills on your behalf, and having an escrow account ensures that they’ll always be paid on time. If you live in a condo or other type of property with a homeowners association, the fees for that organization will also be included in your total payment due, even if you pay them yourself.

Your loan servicer is required to send you an annual escrow analysis. This document shows how much money came into your escrow or impound account over the course of the year, as well as what bills were paid. If there is a shortage (due to increased taxes or insurance premiums, for example), you will be responsible for making up the difference. Depending on the amount owed, you may have the option to include it in your future payments, or you may be required to pay the full amount immediately.

The Loan Heads to the Processor 

Once all the documents are signed and submitted, the loan will continue through the process. Although all lenders do things slightly differently, most will send your file to a processor. At this time, the processor will review all the documents you provided and make sure all the documents are current and that nothing is missing. They do not evaluate the numbers or analyze any documents. After that, your loan will be sent to an underwriter. The underwriter is the one who will evaluate all of the information in your loan file and make sure it meets the guidelines set by the lender. If everything looks good, they will approve your loan. 

The underwriter may order a verification of employment, title work, and a copy of your tax transcripts, or any other required paperwork. This “double check” ensures that all required documents have been submitted.

Once all the documents are done, the file passes over to an underwriter.

The Underwriter 

As the most important person in the loan process, the underwriter plays a critical role in ensuring that a loan meets the lending guidelines. The underwriter is responsible for reviewing all of the loan officer’s numbers for income, assets, and liabilities, and making sure that they fit within the parameters set by the lender. By double-checking these numbers, the underwriter can help to prevent any problems with the loan from occurring down the line.

After the loan officer has reviewed the application and supporting documentation, they will submit it to the underwriter. The underwriter’s job is to verify all of the information in the application and supporting documentation. This includes verifying the income and stable job history, debt ratios, credit history, and proving that the debt falls within all acceptable limits. The guidelines for each loan are hundreds of pages long, and the underwriter needs to be familiar with those guidelines.

The underwriter will also verify that all tax, title, insurance, and closing documentation is in place.

Manual and Automated Underwrite

If the program comes back with an eligible result, the loan officer can then proceed with sending the file to the lender for review. If the result is refer, this means that there are some items on the credit report or in the application that need to be addressed before the file can move forward. The loan officer will work with the borrower to get any necessary documentation and resubmit the file. If the result is deny, this means that, based on the information provided, the borrower does not meet the criteria for approval. The loan officer will work with the borrower to see if there is anything that can be done to improve their chances of approval and resubmit the file if appropriate.

If your loan is eligible or accepted, the loan officer can move it forward through the normal process. Even in those cases, the underwriter will still do their due diligence and verify everything submitted. If the physical documents do not match the AUS, the underwriter will send the file back with conditions. This gives the loan officer another opportunity to clarify or update any incorrect documents. Once those documents are corrected, the file will go back to the underwriter for further review.

The first thing the loan officer will do when they get a file that needs a manual underwrite is to make sure that it meets all of the minimum requirements for the program. After that, they will start to put together a package of information that will tell the story of the borrower’s financial situation. This can include things like tax returns, pay stubs, bank statements, and more. The goal is to build a picture of the borrower that shows they have the ability to repay the loan.

Once the loan officer has all of the necessary documentation, they will start to write up a summary of the borrower’s profile.

Not only will those files give the essential information, but they may also include a created credit history for people with no credit score along with extra data about any past credit problems. This documentation gives the underwriter more insight so that they can make a wiser decision about how solid the risk would be.

An underwriter is taking a calculated risk when manually underwriting, and they will take additional precautions in the guideline letter and the intent. It’s a case-by-case situation that hinges on how much risk the firm is willing to take. If they’re wrong and the loan defaults, it costs them money and may jeopardize their ability to offer future similar loans.

The underwriting procedure is set up to safeguard the lender from taking on too much risk. Based on the results, the underwriter may assess each loan application and determine whether or not to accept it.


The appraiser is hired by the lender to verify that the amount the buyer is paying for the property matches its actual value. In addition, depending on the type of loan, they may also need to confirm that the house is free from any obvious defects. It’s important to note that an appraisal is not the same as a home inspection – they serve different purposes. Home inspections are typically carried out by the buyer themselves (or their agent) before making an offer on a property, whereas appraisals are ordered by the lender after an offer has been accepted.

It is highly recommended that home buyers hire a professional home inspector to assess the condition of a property before making an offer. A home inspection is an objective visual examination of the physical structure and systems of a house. Home inspectors are usually employed by the prospective home buyer and done before the loan is even submitted. A home inspector hired by a buyer works in the best interest of the client, the home buyer.

An appraiser looks at the house from a financial perspective. They appraise the value of the house based on square footage, lot size, and many other factors. They also look at property values of other houses in the neighborhood to get a better understanding. In addition, they need to check for major defects such as holes in the roof, safety issues, and anything that would lower the value of the property. All of information is used to give the bank an accurate idea of how much the home is worth.

The main difference between “subject to” and “as is” pertains to repairs that are required in order for the loan to close. With an “”as is”” appraisal, the appraiser notes any necessary repairs in the report but does not require that they be completed before closing; it is up to the buyer whether or not to make the repairs. A “subject to” appraisal means that the necessary repairs must be completed before the loan can close. In some cases, an escrow account may be set up to handle payment for repairs after closing. Not all lenders allow escrow repairs.

If the appraisal is “subject to,” this means that in the appraiser’s opinion, there are certain repairs or improvements that should be made to the property in order for it to reach its full value potential. The underwriter will then take these recommendations into consideration when making their final decision on whether or not to approve the loan.

It is important to remember that an appraisal is only one part of the loan approval process. The underwriter will also consider other factors such as your credit history, employment history, and financial situation before making a final decision.

If you’re thinking about buying a property, it’s important to have a home inspection done first. A home inspector will check the property for any potential problems, such as structural damage, water damage, mold, or electrical issues. They’ll also ensure that all of the systems in the house are working properly and that there are no safety risks. Having a home inspection done before you buy a property can save you a lot of money and hassle in the long run.

What is Title Insurance?

In addition to an appraisal, title work is also gathered. The title work has two sides: the one requested by the lender for protection and the other for the buyer’s protection. They both fulfill different objectives.

The lender’s title insurance protects the lender against any legal problems with the home’s title. The buyer pays for this service as part of their closing costs, but it only covers issues relating to the title itself and not anything else.

An owner’s policy of title insurance protects the homeowner from claims against the property that may have arisen before the homeowner purchased it. Common claims include a previous owner’s failure to pay taxes, or from contractors who say they were not paid for work done on the house. In many states, the buyer will ask the seller to pay for this title insurance when they write the offer. When this happens, often the seller will choose the title company and not the buyer, as the seller is paying.

After the final reviews are done.

After the appraisal and title come back, and the underwriter has reviewed all your documents, your file starts the closing process. The final documents are completed in two steps before you sign at the closing table. The first is that the underwriter issues you a “final approval.” This means additional documentation isn’t needed; however, it may not indicate that everything is finalized yet.

Now, the file will go back to a processor. They will make sure you haven’t taken on any new debt and will verify employment again, order your homeowners insurance, and make sure any required documents that loan processor called from an outside party are all in, like tax transcripts, requested changes to title work, or appraisals.

Many loan officers do not know the difference between final approval and “clear to close.” If any crucial information is missing or different from what the borrower provided, it can cause a delay in closing. At this time, you will likely receive an initial closing disclosure.

This document covers all the expenses connected with your loan, including any costs you might be responsible for. Carefully reading this paper will help you avoid any unpleasant surprises at closing. You will obtain your clearance to close once everything on the initial closing disclosure has been completed.

By law, you must receive an initial closing disclosure at least three days before your scheduled closing. This document outlines critical loan information, terms, and fees associated with obtaining a mortgage. Except for items that fall under the category of “shoppable services” (and even then, costs shouldn’t exceed 10% from those estimated initially), figures provided in this form should match closely to what was stated in the original loan estimate sign-off.

You would have received an updated loan estimate if something had changed dramatically in the loan process, like changing a loan program and deciding to switch from a thirty-year to a fifteen-year loan. The three-day waiting period often won’t begin until you sign that you received this document.

Some details on the closing—like proration, updated property tax or insurance, and interest charged from the day of closing to end-of-month—might be different than what was initially estimated. But key elements like purpose, product, sales price, loan amount, loan term, and interest rate shouldn’t have changed from when you received your Loan Estimate.

A sample can be found at:

TILA RESPA Integrated Disclosure

Mortgage Process Summary

You’ve completed all the paperwork, received your first closing disclosure for review, and are ready to complete. The lender’s closer collaborates with the title or escrow company to create your final figures and papers.

At the closing, you will sign the mortgage loan documents and become legally responsible for the loan. You will also sign the deed to your new home, making you the legal owner of the property. Depending on state law, all parties may gather around a table and sign the documents at the same time, or signatures may be collected separately. Some of the people who might attend your closing include:

  • Your realtor or real estate agent
  • Your title insurance company
  • An escrow company
  • Your attorney (some states require attorneys to conduct closings) or if you hire legal representation
  • The seller’s attorney
  • Your lender

Some of the many documents you may sign at closing include:

  • A promissory note which describes details regarding your loan
  • A mortgage or security instrument that explains your responsibilities and rights as a borrower, and which grants the lender or servicer the right to foreclose on your home if you fail to make payments as agreed.
  • Any state and local government mandated documents
  • Lender documents

At closing, you will typically owe money to the title or escrow company. These funds can be paid via wire transfer or certified/cashier’s check. Personal checks and cash are usually not accepted.

Once all documents have been signed and verified by the title/escrow/attorney and the lender, the funds will be disbursed. The seller will then transfer ownership to you, and this will be recorded at your local government agency.

Now that you have your new home, it’s time to take care of some logistics. You’ll need to update your driver’s license and file homestead taxes, switch utilities into your name, and let everyone who needs your new address know. In addition, be sure to keep your mortgage document in a safe place

Making Mortgage Payments

Usually, your first mortgage payment is deferred until the month after you close on the house. For example, if you close in May, your first mortgage payment will be in July.

Many people don’t understand the difference between selling the interest in a loan and servicing the loan. Most lenders always sell the interest in the mortgage to an agency, such as Fannie Mae, Freddie Mac, or Ginnie Mae. Doing this allows them to have more ready cash on hand so they can make more loans.

Fannie Mae (Federal National Mortgage Association) is a government-sponsored enterprise, or GSE, with the mission of bringing liquidity, stability, and affordability to the U.S. housing market. It does this by purchasing mortgages from lenders, and then selling them, through a process called securitization. Securitizing is the process of pooling mortgages and selling them to investors. Usually, the bank retains the servicing rights, and most borrowers never know their loans are owned by one of the agencies.

Servicing Rights

Servicing rights are the rights to collect payments on a loan. The servicing company is responsible for collecting payments from the borrower, maintaining contact with the borrower, and managing the loan account.

When servicing rights are sold, borrowers must make monthly payments to the new servicer. The loan terms, including the interest rate and monthly payment amount, will not change. Borrowers should receive notice from their current servicer when servicing rights are transferred to another company.

The servicer of your mortgage loan is responsible for collecting and processing your monthly payments. They will also manage communications with you regarding your loan, and handle paying taxes and insurance from any escrow accounts associated with the loan.  If the loan is sold or transferred, and the servicer changes, here is what to expect.

You will receive two notices when your loan is transferred to a new servicer. One notice will come from your current servicer, and the other notice will come from your new servicer. It’s important that you wait to receive a “goodbye” letter from your current servicer before you start sending payments to your new servicer. If you don’t receive a goodbye letter, or if you’re unsure who your new servicer is, please contact your loan officer.

The borrower’s current servicer must notify you at least fifteen days before the effective date of transfer. Review the notice carefully, as it should contain:

  • Name and address of the new servicer
  • When the current servicer will stop accepting your payments
  • The date the new servicer will begin accepting your payments
  • The date the first mortgage payment is due to the new servicer
  • Telephone numbers for the current and new servicer
  • Whether you can continue optional insurance like credit, life, or disability
  • A statement explaining your rights and what to do if you have a question or complaint about your loan servicing

Other Do’s and Don’ts

  • If your payments are automatically deducted from your account, make sure that those deductions will continue with the new payment service. If not, ask for the appropriate paperwork to sign up for automatic deduction with the new payment servicer.
  • If you send payments straight from your bank account instead of the lender withdrawing them, be sure to update the payment information and pay close attention to the transfer’s effective date.
  • If you mail payments, verify the new address and the new account number for the loan with the new servicer.
  • After you’ve made your first payment to your new servicer, call them immediately and check that they received it; there’s a grace period for misdirected payments, so use this time to make sure your bills are correct.
  • It is critical to wait for a transfer/sale notification before sending payment to a new servicer/address.
  • Always contact your existing servicer or loan officer if you have any concerns.
  • Don’t resist the transfer or sale. You have little control over it.

Mortgage Approval Guide Conclusion

When it comes to obtaining a mortgage, you don’t just want to be prepared with paperwork and information; you want the best loan officer for the job. You want a loan officer that knows the procedure, is aware of the programs, and can ask all of the right questions so that you’re in the right program. On the debt side, a committed and genuine loan officer will serve as your financial consultant.

All of the following should be completed by your loan officer:

  • Discuss your present circumstances and goals for the current mortgage.
  • Consider how loan terms affect your overall financial picture, including interest rates and fees. Make sure you understand what each loan’s terms contain so that you can make an informed decision.
  • Provide you with the most pleasant experience imaginable through connection, education, and expertise.
  • Keep in touch with them and conduct annual evaluations.

To find the right loan officer, visit our directory of Mortgage Loan Officers helping clients nationwide.

This is the most significant purchase of your life. Make an informed decision by picking the proper person to guide you through the process.

Mortgage Loan Approval FAQs


A mortgage is a loan that a bank or mortgage lender gives you to help finance the purchase of a home. The home you purchase with the mortgage as collateral. A mortgage is "secured" by the home itself.
Mortgage loan officers are also called mortgage brokers. They work as middlemen between you and the lender. Mortgage loan officers help borrowers find the best mortgage terms that fit their needs and work with the lender to get the loan approved.
A pre-approval is a letter from a lender that indicates how much money you can borrow for a home purchase. By getting pre-approved for a mortgage, you may have a competitive edge over those not pre-approved since the seller can have confidence in your eligibility to receive a loan.
If you have a mortgage, there's a good chance it has been sold or transferred at least once since you closed on your home. In most cases, you will be notified by your servicer prior to the transfer. The new servicer must also provide you with notice no later than 15 days after the effective date of transfer.
The federal government has established certain protections for borrowers in the event their loan is sold or transferred. Specifically, the Servicemembers Civil Relief Act (SCRA) and the Mortgage Servicing Rules set forth by the Consumer Financial Protection Bureau (CFPB) offer certain rights and protections.

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.