January 29, 2020

What To Expect After Pre-Approval (But Before Closing)

In my prior blog post I reviewed the details of meeting with a Loan Officer and the pre-approval process. Much of the direct involvement between a borrower and a Loan Officer happens initially and then usually shifts to your Real Estate Agent. Today's post reviews the "in-between" steps between pre-approval and the closing table.

  • Verification of Employment (VOE) / Verification of Deposit (VOD): Once the application is complete, work begins for the lender to verify work history, funds used for the down payment & reserves, and pulling tax transcripts for the prior 2 years. Direct involvement with you as a borrower may vary, but providing all of the initial documentation is accurate it is typically a simple process. This follows a lender's responsibility for your "Ability to Repay" the mortgage, according to the Consumer Financial Protection Bureau.

  • Appraisal and Home Inspection: Once you are under contract with a home and signal to your lender your intent to proceed with the loan, a lender will order an appraisal on the property. The purpose of an appraisal is to verify that the property is worth the price on the purchase contract and is not inflated compared to comparable home sales in the area. Similar in nature to an appraisal, a home inspection verifies the condition of the property to help ensure the price of the property reflects the condition. As an example, if a home in an excellent neighborhood has significant structural repairs needed, the purchase price should reflect the repairs needed. Home inspections aren't always required by lenders and vary on a case by case basis and loan type, so be sure to check with your Loan Officer on their policy for the loan you selected. Ultimately, a home inspection carries a huge benefit for you and can help find significant issues which an untrained eye cannot see. Since a home buyer can have "rose colored glasses" in excitement for their new home (myself included), an unbiased observer can help to expose flaws that may be enough to walk away from purchasing it.

  • Title Review: This is one of the most significant steps of the process to buy a new home, but is also one that a buyer almost never interacts with. Ensuring a clean title on a home (verifying that no party other than who is selling the home has a claim on it) can avoid headaches in the future for the new homeowner. Title issues on a property can vary from a "gap in title" where a gap in ownership exists in a certain time frame to an unmentioned lien on the property for any number of reasons (unpaid property taxes, unpaid contractor expenses, and numerous others). The title company does an extensive review on the property to help expose defects in the title on the home, helping the new owner to have peace of mind. The Consumer Financial Protection Bureau (CFPB) explains additional features to title, such as owner's title insurance and lender's title insurance, protecting both lender and owner in the event an unforeseen claimant sues the property owner.

Once these steps are complete, typically the process moves toward the closing date and finalizing the transaction. Although hiccups in the process above may happen, most home buyers prepare for the closing date and making preparations to move. My next blog post will review the final step in the process - the closing table.