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You’ve made it through the mortgage loan application, and now it’s moving toward the closing table. If you’ve ever wondered what goes on behind the scenes during this time, it starts with your Loan Processor. Read on to learn the important role the Loan Processor plays in the mortgage process, what to expect and tips for facilitating a smooth experience.
The Loan Processor’s Role
You may love your real estate agent and rely on your inspector, but the relatively unknown Loan Processor is equally important in getting you the home you want.
What Does a Loan Processor Do?
A Loan Processor— also known as a Pennymac Loan Expert—is a financial professional who collects and prepares all the materials needed to secure a loan for a borrower. They facilitate the application process by examining your application and verifying all the information provided. If any parts of your application are unclear or require further clarification, they may ask you for additional information to complete your file.
A Loan Processor collaborates with the homebuyers and the underwriter to create a foundation for a streamlined and successful mortgage process. Some of a Loan Processor’s responsibilities include:
- Collecting proof of employment, assets, debt, income and homeowners insurance
Your Loan Processor’s primary job is to verify the information you’ve provided on your mortgage application. This means checking your income verification (W-2s, pay stubs and/or tax returns), assets (checking and savings accounts) and outstanding debts (car and student loans). - Analyzing your income
Loan Processors will pay particular attention to your income. Lenders don’t want your total monthly mortgage payments—principal, interest, property taxes and homeowners insurance—to swallow up your monthly gross income. They want to ensure you’ll be able to manage your current obligations and your new monthly mortgage payments comfortably. - Adhering to regulations
Loan Processors are well-versed in federal, state and local mortgage lending regulations. They assist homebuyers in preparing required documentation and will be aware of the latest requirements and mandates to ensure you comply with the most recent regulations. - Ensuring a smooth transition to underwriting
After compiling and reviewing your information, your Loan Processor will submit all the documentation to the underwriting.
Loan Processing: What to Expect
The time between the loan application and closing is known as mortgage processing. During this step, your lender’s loan processing team will double-check your file for completion and accuracy. This means collecting and verifying all the information you’ve supplied, ordering credit reports and arranging a home appraisal. Ultimately, this data will be used to determine your loan approval status.
From here, it will transition to underwriting. During the mortgage underwriting process, your documents will undergo a final review. A licensed underwriter will thoroughly evaluate all the supporting documents the Loan Processor provides and identify any issues that need to be addressed. Once the underwriter is satisfied with your application and the documents, you’ll receive a conditional approval, also known as a commitment letter, detailing your loan, term and interest rate. Upon final approval, you’ll be cleared to close.
Document Collection and Verification Process
For your lender to verify all the factors that make up your overall financial situation, you’ll need to provide the following:
- Proof of Income: W-2s, pay stubs and a phone call to your employer will be needed. If you have non-W-2 income from sources like rental properties, 1099 work or child support, you’ll have to provide proof of that as well.
- Tax Returns: Ensure you have your tax returns and all supporting documentation from the past few years handy. You may need these to verify certain sources of income, especially if you’re self-employed.
- Statements for Assets and Debts: List current statements for all banking and investment accounts and loans on your application. You may also need previous statements, so ensure you have easy access to them.
- Proof of Insurance: Ask your insurance agent for documentation showing your coverage and proving that your policies are current.
Once you’ve submitted your required documents, your Loan Processor will:
Evaluate Your Information and Documentation. Your Loan Processor will evaluate everything based on your submitted documents. They’ll also order a credit report. This document will report how you’ve handled and managed re-paying past bills (car loans, student loans and home equity lines of credit). Looking at this history will enable the lender to predict your ability to make future mortgage payments in full and on time.
They’ll also ensure you have a current homeowners insurance policy for the house you plan to buy or are currently refinancing. This insurance will protect you and your lender from suffering a financial catastrophe in the case of a fire, flood, etc.
Ensure Compliance With Lender and Regulatory Requirements. Loan Processors will assess your documentation and ensure that it complies with the banking industry’s rules and regulations as well as federal and state laws. Many of these regulations aim to protect both lenders and borrowers.
Address Discrepancies and Inconsistencies. Loan Processors are responsible for ensuring the accuracy of all documentation submitted. If they discover any discrepancies, they may request clarification or additional documents.
Ordering Appraisals and Payoff Information
Now that your lender has verified your financial situation, it’s time to pay close attention to the home you want to buy. The first step in that process is ordering a property appraisal.
The Importance of the Property Appraisal
An appraisal is an unbiased report of your home's current market value performed by a licensed, qualified, independent appraiser. It’s one of the most critical components of loan processing.
A home appraisal ensures the home buyer, the home seller and the mortgage lender receive the property’s accurate and true value. Lenders need to know a home’s value to make sure they won’t lend more than a home is worth. It will ultimately affect how much a bank is willing to lend. Unlike how you chose your real estate agent or lender, appraisers are selected by your lender to maintain impartiality in property transactions.
The Appraisal Process
As part of the process, the appraiser will:
- Measure the square footage, verify the number of bedrooms and bathrooms, and compare the findings with local housing data to ensure accuracy.
- Evaluate the condition of major systems and structures, check for water, termite or mold damage, evaluate the furnace and plumbing and identify potential replacements like the roof. Home improvements and upgrades are also considered. The in-person appraisal typically lasts over an hour, depending on the property size.
- Analyze comparables (comps), which are similar homes recently sold in the area. Comps typically share characteristics like size, age and style. Only homes sold within the past three to six months are considered for comparison.
- Prepare a final report of the home’s value based on the gathered information and analysis.
Refinancing
Lastly, if you’re refinancing, your Loan Processor will request your payoff information (how much you still owe on your current home) from your present lender. Knowing this number will help your lender determine your new monthly payment amount.
The Role of Your Loan Underwriter
Once the Loan Processor finishes assembling your application, they will send your file to the underwriting team. Here, an underwriter will double-check your financial profile one last time to ensure all the necessary documentation is present and accurate. Underwriters will also seek to clarify any inconsistencies or gaps in your application by requesting letters of explanation (a document in which a borrower can explain why their income decreased, job changed or credit score fell).
Then, the underwriter will decide to approve or deny your loan request. They do this by ensuring that your unique financial situation meets all the guidelines of the loan you’re applying for. If approved, you’ll be on to the final step and begin coordinating schedules to sign all the paperwork and wrap up the closing.
Finally, it’s important to know that slight variations in this process may occur as lenders may delegate responsibilities of loan originators (the banker or broker helping you through the mortgage process), Loan Processors and underwriters a bit differently. One lender may handle all aspects of your loan from start to finish, while others may outsource processing, underwriting or both. If you're uncertain about who's responsible for a specific task, feel free to consult your originator for clarification.
Common Loan Processing Situations and Tips for a Smoother Process
Completing the mortgage loan process can feel neverending—particularly when you’re waiting to move into your new home. Plus, as you progress, various situations can arise. Fortunately, there are several steps you can take to help avoid them:
Situation: Inaccurate credit report
Tip: Since your credit score and credit history are key loan qualification factors, check your credit report for accuracy early in the loan process. Have any errors removed to ensure your credit score is as strong as possible. Federal law entitles you to a free credit report annually from each of the three major credit bureaus: Equifax, Experian and TransUnion. You can request your reports at AnnualCreditReport.com.
Situation: Not preparing for your payoff if refinancing
Tip: Contact your current lender or closing agent to request that they send payoff information to you or your new lender. Make sure you have their contact information and understand the process.
Situation: Insufficient or inaccurate documentation
Tip: Understanding what information and financial documentation you’ll need for your loan and gathering it all in advance can facilitate loan processing. Proactively let your lender know if you have any changes in your employment, income, debt, insurance coverage or other things that may impact your loan.
Situation: Communication delays
Tip: Communication is the key to making the loan process move quickly and smoothly. Stay in touch with your lender and respond promptly to requests for additional information from Loan Processors and underwriters. They’re reviewing your documentation and may need clarification on certain items. Timely responses expedite the underwriting process.
Work With a Pennymac Loan Expert
An experienced lender can guide you through the mortgage process with ease. Contact a Pennymac Loan Expert today to learn more about how we can help you purchase or refinance your home.
Jump to...
- Part 1 - Explaining the Home Loan Process
- Part 2 - 1003 Uniform Residential Loan Application Explained
- Part 3 - Understanding Loan Processors and Mortgage Processing
- Part 4 - Mortgage Underwriting
- Part 5 - The Closing Process
- Part 6 - Loan Service Transfer
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