Home mortgages – approved vs. cleared

During the process of taking a home loan application from application point to closed and funded is a journey of a thousand tales. Home shoppers, of course, need to know when to start shopping and for how much of a home mortgage they are approved.

Approval is a short matter of accepting an application, examining the home loan applicant’s credit, income and assets, and generally includes submission to an automated underwriting engine such as Fannie Mae’s Desktop Underwriter (DU for lenders) or Desktop Originator (DO for brokers). Being among the first steps in the loan process the automated underwriting system (AUS) gives the earliest indicator of what needs to occur in order to close the loan. Often the next step is securing a property, especially when purchasing one of the many homes for sale featured here on Zillow.com, and providing a fully executed sales agreement to the loan officer (MLO – Mortgage Loan Originator).

During the time between the acceptance of the sales agreement and the closing of the loan many steps need to be taken depending on the type of the loan. The time it takes to accomplish each step is entirely dependent on the speed with which each party acts. Under new federal guidelines in the Real Estate Settlement and Procedures Act (RESPA ammended 2009 effective 1/1/2010) the MLO cannot accept income and asset documents from the home loan applicant until they have completed six trigger events. Those six events are:

1. Borrower(s) full name(s)
2. Borrower(s) Social Security Number(s)
3. Borrower(s) income – can be verbal
4. Property address (“to be determined” is not a trigger)
5. Property value estimation (can be a guess based on sales price)
6. Loan amount

Once an offer has been accepted on a property then the real work begins where the MLO and her processor start working to meet all the required conditions such as getting a clear title on the property, status and amount of property taxes, employment verifications, citizenship validation, verification of tax returns, proof of insurance coverage, acceptable appraisal of value, and others. Additional “stips” may also be issued by the AUS which need to be met before sending to the underwriter as well.

Underwriters have the very critical job of insuring the applicant(s) and property meet all of the guidelines for the specific type of loan being issued. Usually, in direct lenders especially, if the stipulations of the AUS are met by the MLO and processor are met the underwriter will approve the loan and the all important “Clear To Close” is issued.

What happens between application and Clear To Close is a journey of many opportunities. Applicants can help insure a quicker time and smoother experience by providing all the information requested by the MLO as quickly as possible and if all parties do the same it will be a fast closing and smooth sailing. Otherwise it can get bumpy so exercise patience and be ready to help when called upon.