A loan is a loan, right? Well, yes and no. Some loans are speedy – you push a bunch of documents at a lender and get the loan closed in 30 some odd days. Other loans, such as for a new construction home, work a little differently because of the longer time frame involved. You meet with a lender to do a pre-approval, push a bunch of documents at them, get the pre-approval, sign a new home sales contract, then wait. And wait. And wait some more, until finally the builder says, “your home is nearly complete and we have a close date!” at which time you then push a bunch more documents at the lender to get a final approval and close on the loan.
Initial Lender Pre-Approval
The beginning of any real estate purchase (unless you are paying CASH of course) starts with getting a pre-qualification or pre-approval letter from a mortgage lender. The lender will ask you to fill out a loan application and then have you furnish a number of documents to establish your income and monthly debt load. The lender will pull your credit report and then talk with you about how much money you wish to put as a down payment on the home. Based on all of this, the lender will let you know what lending options are open for you. Once you have decided which option works best for your situation, the lender will then issue a pre-approval letter that states who the pre-approval is for, what kind of a loan it is for, how much money you are approved to borrow, the interest rate, the monthly payment, and additional information that details what the approval is based on. With this pre-approval, you may now go forth and purchase a home!
I have purchased a new home. Now what?
Alright, so you took that pre-approval letter to that home builder up the street, and you wrote a contract for them to build you a new home. Now what? So now it is time to do a little waiting. The lender will need a copy of the fully signed contract along with any new addendums for the home purchase as they come up during the process. The lender will then put your file to the side for a while, as there is not much to do until the home nears completion.
During this time, it is very important to pay heed to what the lender most likely told you: DO NOT go out and buy a car. DO NOT go out and charge up your credit cards. DO NOT take out credit to buy a boat, over-sized TV, or a giant sized inflatable Godzilla to put on your front lawn. And for heaven’s sake, DO NOT change careers or quit your job! For most people, this is the time to hold tight to your credit situation and do what your lender recommends. Doing any of those other things can jeopardize your loan, and it could ultimately end up costing you your earnest money and not being able to buy your dream home.
I have a Close Date!
The waiting has been hard, but you have watched as your future home sprang forth from the ground and slowly turns into something that you start to recognize as your soon to be residence. One day, the builder contacts you and tells you that “your home is nearly complete and we have a close date!” This means that the builder has finally been able to schedule out the remaining trades to do the final work on the home, and they have a completion date for you. The builder will share these dates with your lender, who will then pick your file up off of the shelf, blow the dust off of it, and start working on getting your loan final approval.
Getting final approval for the loan means supplying a whole bunch of documents once again to the lender, as the loan underwriter will need to see these most recent versions of these documents. They are most likely going to ask you for updated pay stubs, new bank statements, W2 forms, tax statements, a possible letter of explanation for why you had a two day gap in your employment history, your 6th grade report card… Ok, maybe not the report card, but the point is they are going to be asking you for a lot of things, and you will want to be on the ball in supplying these items as quickly as possible. The lender will also be working with the builder on getting the appraisal done and collecting a number of different certifications and paperwork from the builder for the loan.
Once final approval comes in, then it is a matter of the lender sending the loan documents to the title company a few days ahead of the closing date so that you can get in to sign those docs before the close date. Limber your fingers up, do some hand exercises, then go sign away at the title company. This is also the time when you will have to bring in any additional money for your down payment and closing costs. The title company will tell you the exact amount to bring in when you schedule the signing appointment.
The newly signed loan documents then get sent back to the lender and funding of the loan is then setup. Most funding takes place via wire transfer from the lender to the title company. The timing is pretty critical as most lenders have a cutoff time where they can no longer do wire transfers that day. Most of the lenders I have worked with need to have all of their funding conditions in place by 10am in order to send out the funds via wire transfer that day. If there is a delay past 10am, then the wire transfer could be delayed until the next day. Once the title company receives the funding, they then just need to record the closing with the County Recorder’s Office, then they will contact you with the good news that you have closed on your home! Congratulations!