Initial Submission to Conditional Approval

During your initial application, your borrower should have submitted the following documents for review:

• Initial Disclosures (including signed mortgage application [1003])
• Purchase Contract
• Credit Report
• Income verification documentation 
• Asset statements

*Note, Fannie Mae requires that for all mortgage loans, the credit documents (credit reports and employment, income, and asset documentation) must be no more than four months old on the note (closing) date. 

 If you’d like to learn more about documents needed for the initial submission process, follow the link here.

Conditional Approval to Final Approval

Once the lender reviews the loan and deems it eligible, they will issue a conditional approval. This means that final loan approval is contingent upon a few additional requirements. Essentially, you’ve provided initial information in the submission phase, now the underwriter needs to confirm the information and verify eligibility.

If the information provided during submission is simple (i.e W-2 wage earner, no other retained properties), straightforward and clearly demonstrates loan qualification, you can expect just a few conditions. Typically, these conditions will be associated with third party tasks. Third party conditions are conditions managed by an individual other than the borrower. They include the following: 

• Appraisal: A report that determines the value of the property.
• Title: Documentation that both proves ownership and provides insurance in the event that someone challenges that ownership.
• Homeowners Insurance: An insurance policy that provides coverage for the home in the event of a disaster.

If you notice an extensive list of conditions after Conditional Approval, this should not be cause for concern. Most applications are not straight forward and a few questions tend to come up along the way. 

Typical Conditions

Here are a list of typical conditions at CA and tips on how to get ahead of them. The below is not an exhaustive list, but rather a quick guide to help you hit the ground running.

Revisions to the Mortgage Application (1003)

The 1003 captures a bunch of information about your borrower’s profile. It’s extremely important that you work with your borrower to complete the application fully and accurately because mistakes in the application may lead to delays down the road. 

* Common mistakes include incorrect addresses or phone numbers for employers.

Additional Income or Employment Documentation

The lender is going to review income documents to verify that information is consistent among paystubs, W2s, Tax Returns etc. If there is inconsistency, the lender may ask for a written explanation from your borrower’s employer. If the borrower is aware of an inconsistency, they may want to notify their employer ahead of time so that they can prepare a response. It’s also extremely important that your borrower provides a good employer contact on the 1003 so that the lender can address issues directly with the employer.

Purchase Contract Signatures and Addendums

The lender will condition for any information that is missing on the purchase contract. Most typically, the lender will condition for missing signatures or addendums. We often see that addendums are referenced in the purchase contract but not included in the package. It’s best to review the contract ahead of time to ensure the document is complete and fully executed. Any additional addenda referenced but not included in the original contact must be provided. Lastly, it’s important to note that the property address on the purchase contact must match the mortgage application exactly. If there is a typo or discrepancy, it will need to be addressed. 

Letters of Explanation

Credit Inquiry Letter: The lender will ask the borrower to address any recent inquiries on their credit report. If none of the inquiries led to new debt, we will issue a Morty “Credit Inquiry Letter” that verifies no debt was opened. However, if the borrower did open a new account recently, the lender will ask for the most statement showing the monthly payment and account balance. Please ask your borrower ahead of time if any new debts (credit cards, loans etc.) were opened within the last 30 days.

Address Discrepancy Letter: If the borrower’s home address doesn’t match submission documents, the lender will ask for explanation of the discrepancy. You or your borrower can review submission documents ahead of time to flag address discrepancies.

Assets

The lender will review bank statements to ensure (1) all large deposits are appropriately sourced (2) The borrower has sufficient assets to close and (3) Non-Liquid funds for closing are moved to a liquid account (checking or savings). 

Large Deposits

A large deposit is any deposit greater than 50% of the borrower’s monthly income. Encourage your borrower to provide additional documentation or statements that show the source of the large deposits. Please note, a cash deposit is not sourceable and must be backed out (subtracted) from the asset total.

Insufficient funds: If your borrower has insufficient assets or if the assets are just within the threshold to close, encourage your borrower to provide proof of additional assets, if available. The cash to close amount may change slightly especially as we verify taxes and title fees, so it’s best to submit more assets than less.

Asset Liquidation: If your borrower is using nonliquid assets such as stocks, bonds or retirement assets, they will need to move the money into a liquid account, such as a checking or savings account, in order to use that money for closing. If your borrower is not ready to liquidate assets at submission, set the expectation that they will need to liquidate assets before we achieve Final Approval. It’s best to liquidate no later than 2 weeks prior to the closing date because it takes time for some financial institutions to move the funds.

Final Approval to Close

Once all conditional approval conditions have been cleared, the lender will issue a Final Approval. Final Approval means that your loan is approved and now the lender and associated parties (Settlement Agent, Title, Attorneys) must collaborate to prepare your closing documents.

Final Closing Disclosure

Once a Final Approval is issued, the lender will collaborate with the Settlement Agent to prepare the Final Closing Disclosure through a process called balancing. Note, the Settlement agent is the agency that is handling the coordination of signature and disbursement of mortgage funds. Usually the settlement agent is the Title agent or the lender attorney, depending on the state.

The Final Closing Disclosure includes the closing costs (total fees associated with the preparation of your loan) and the cash to close amount (the amount you need to pay to close). 

During balancing, the lender and settlement agent will verify all fees associated with the loan. You may notice some slight changes between the Preliminary Closing Disclosure  and the Final Closing Disclosure. Reason being, your Preliminary Closing Disclosure includes a honed estimate of fees, while the Final Closing Disclosure captures the final and confirmed amounts. Note, there are rules in place that prevent certain fees from significantly exceeding the estimates on the Prelim CD so the Final CD fees should not typically come as a surprise.

Docs Out

Once the settlement agent, lender, and broker (Morty) approve the Final CD, the lender will typically release all closing documents electronically to be signed on closing day. The Closing Package will include the Final CD along with any associated loan documents and disclosures that require signature. 

Closing

The settlement agent will advise the borrower on how to prepare their cash to close funds. The settlement agent will also typically walk you through the closing package and answer any questions regarding the documents that require signature. 

Funding

Funds are sometimes issued immediately by the lender, but depending on the state and funding requirements, funds may take a few hours to reach the settlement agent. 

Sometimes the settlement agent will have a series of conditions that they need to satisfy before funds are released. However, if the settlement agent has addressed their funding conditions and funds have still not been received,  you can ask your Platform Success Manager for a federal tracking number to ensure mortgage funds are on their way.

Once the settlement agent receives funds and receives approval from the lender to disburse, the closing will be complete!

Additional Resources

Additional links for you and your borrower:

1. Mortgage Timeline: https://www.morty.com/resources/mortgage-manual/the-mortgage-journey/mortgage-timeline
2. Mortgage Glossary: https://www.morty.com/resources/glossary
3. Mortgage Manual: https://www.morty.com/resources/mortgage-manual