Starting the mortgage application process can be intimidating. What’s expected of you to ensure the loan goes through promptly? How long will it take? What kind of documentation should you prepare for the process? On top of all these questions, your new home is on the line. That’s a lot of pressure.
Sunrise Banks is here to take some of that burden off your shoulders by walking you through the mortgage loan approval process. We’ve been based in the heart of Minnesota for over 30 years, so we’ve answered every mortgage question out there. In this article, we’ll cover all the questions above and unveil what’s happening behind the scenes. If you have more questions about getting a mortgage approved in Minnesota after reading this, contact our team. We’ll be glad to help.
Steps of Mortgage Loan Approval in Minnesota
Let’s assume you’ve already budgeted how much you can spend on your new home. You’ve chosen your lender. You’ve been preapproved and found the home you want to buy. Now what? Here’s a play-by-play of the steps your mortgage loan will go through. Learn how to get approved for a mortgage loan quickly by working with your Minnesota-based processing team.
1. The Mortgage Application Process
When you’re applying for a mortgage, you’ll need more documentation than you did when you went through the preapproval process. The mortgage processors are like detectives, trying to prove you’ll be able to pay your mortgage by documenting your employment, assets, debt-to-income ratio, property information, and credit history. Check out this pre-application worksheet for a list of the documents you need. Submitting this to Sunrise Banks’ mortgage department will give our team a head start in the approval process.
It’s a wise idea to get organized before documents and information are requested. If you can get the information to the processor promptly, there will be fewer delays in your loan application process. Here are some documents you’ll want to have on hand to help jumpstart the beginning of the mortgage application process:
- W-2s (for those who have an employer or a profit and loss statement for those who are self-employed): You’ll need two years' worth of income documentation.
- Bank statements: The processor will ask for two to three months of bank statements.
- Gift Letters: If someone close to you or your family is helping you pay for your down payment or closing costs, you’ll need a gift letter that includes the exact amount they’re giving you as well as the donor’s name, address, and phone number. The letter will also need to explain your relationship to the donor. The person giving the gift must complete and sign the letter. It is okay if the letter is completed after the gift has been received.
- Photo ID: You’ll need an official government ID to prove that you are who you say you are.
- Letter from your landlord: This is sometimes required from those who have never owned a home before and don’t have much of a credit history.
Some resources may tell you to have a credit report on hand. We’d like to remind you that you’ll want to avoid taking out a hard credit inquiry before applying for a mortgage as that will affect your credit score. Your financial institution will do its own credit inquiry during the mortgage application process.
2. Loan Processing
After the financial institution has the information it needs about your finances, it’ll start the actual processing. During this step, you’ll find out if you’ve been approved. You’ll either get a rejection notice if you don’t qualify or you’ll get a loan estimate within three business days.
Here’s what the lender will be doing during this step:
- Credit inquiry
- Verifying employment and bank deposits
- Ordering property inspection
- Ordering title search: This searches for financial issues with the property you want to buy such as outstanding property taxes or liens.
Here is what borrowers are responsible for during this step:
- Once you receive it, accept the loan estimate within ten days.
3. The Underwriting Process
Underwriting is the last step before closing. The underwriting process happens entirely behind the scenes. Executing important tasks such as checking every aspect of the mortgage application and ordering the appraisal.
After this step, your loan will be approved, rejected, or approved with conditions. The conditions might require you to supply more information such as gift letters or an explanation of a large withdrawal or deposit. Once your loan is approved, you’ll be able to lock in your interest rate with your lender.
You’re almost through the mortgage approval process! At this point, you’ll want to get your closing costs ready. They typically range from 2% to 5% of the purchase price. You’ll see both the estimated and final closing costs in your closure disclosure form. Ensure your closing costs look correct and ask your lender for clarification if there are unexpected discrepancies.
Once you sign the closure agreement, your mortgage will become active after three days. During this period, you can review your documents to ensure you’re comfortable with all the details. If no action is taken, your mortgage approval process will be complete!
Actions Minnesotans Should Avoid During the Mortgage Loan Approval Process
The mortgage loan approval process takes 30 to 45 days. However, alarming the underwriter with sudden financial decisions may slow your approval process down. Here are common ways that people add hurdles to meeting their closing date.
Making Large Cash Deposits
During the mortgage process, lenders are working hard to verify your income and assets and understand where your money is coming from and where it is going. A large cash deposit throws a wrench into this understanding. Processors and underwriters will need to verify that the cash deposit is not a loan and was legally obtained, potentially slowing down your approval process.
If you switch jobs during the loan approval process, you may still be approved but you’ll be asked to complete paperwork documenting why you’re changing jobs. You may also be asked to submit your new employment contract and other relevant information. By and large, it might be best to push your new job’s start date out until after your closing date for the sake of getting your mortgage loan approved in a timely manner.
Delaying Required Documents
The documents your loan processor asks for are fundamental to getting your mortgage approved. If you put off finding your W-2s or asking your banks for current statements, you will slow down your approval process.
Taking Out New Lines of Credit
Taking out new lines of credit impacts both your credit score and your debt-to-income ratio. When you’re in the mortgage process, turning down that department store credit card is crucial. Opening a new line of credit may put your closing date in jeopardy and add unnecessary stress to your mortgage approval process, so hold off until you’ve closed.
Get Approved With Sunrise Banks
It might seem like there are a lot of documents to organize and a lot of steps to take before your mortgage loan is approved, however, this time will pass quickly. The team at Sunrise Banks is always ready to help our borrowers through the process. Don’t be afraid to reach out with questions and get your mortgage loan approval process started today.