What Happens After Initial Loan Disclosures Are Signed?

Having signed initial loan disclosures, you have completed a significant step in the loan application process. These disclosures mark the beginning of a detailed journey toward securing your loan. The phases that follow involve a thorough review of your financial standing, an assessment of the collateral, and the final preparations for the transaction’s completion. This guide will walk you through these subsequent stages, from the lender’s internal evaluations to the final signing and funding of your loan.

The Underwriting Process

After initial disclosures are signed, your loan application moves into underwriting, a comprehensive lender review. Underwriters scrutinize your financial health, credit history, and provided information to confirm your ability and willingness to repay. This stage assesses lending risk.

Underwriters verify your financial profile, including income, assets, and employment stability. They request documents like recent pay stubs, W-2 forms, and tax returns (especially if self-employed or with commission income). For assets, provide statements for checking, savings, retirement, and investment accounts. They also examine your credit report for payment history, outstanding debts, and past bankruptcies or foreclosures.

The underwriter calculates your debt-to-income (DTI) ratio, comparing monthly debt payments to gross monthly income. This ratio indicates your capacity to manage additional debt. Lenders prefer a DTI of up to 45% or 50% for revolving accounts and scheduled expenses.

Property Valuation and Legal Review

For secured loans, particularly mortgages, the process includes collateral valuation, typically the property, and a legal review for clear title. An appraisal determines the property’s market value, assuring the lender the asset adequately secures the loan. A professional appraiser inspects the property, considering recent sales of comparable homes, its condition, size, and age to establish value.

Home appraisal costs vary. A property inspection may also be conducted by the borrower to identify structural issues or necessary repairs, protecting buyer interests.

Concurrently, a title search examines public records related to the property’s history. This search uncovers liens, encumbrances, or other claims against the property, such as unpaid taxes, mortgages, or judgments. The goal is to ensure the seller has the legal right to transfer clear ownership. To protect the lender and buyer from future title disputes, title insurance is purchased. This one-time cost covers potential issues like undiscovered liens or recording errors.

Final Loan Approval and Conditions

Following underwriting and property evaluations, your loan application reaches conditional approval. This means the lender has reviewed your information and is prepared to proceed, but outstanding conditions must be met before full approval and funding. These conditions serve as a final checklist for the lender to mitigate risks.

Common conditions include providing updated financial documents or a letter of explanation for unusual financial activity or credit discrepancies. The lender may also require homeowners insurance or a gift letter if gifted funds are used for the down payment. If the appraisal revealed necessary repairs, proof of their completion or a plan for addressing them is a condition.

Satisfying these conditions promptly avoids delays in the loan process. Once all requested documentation and information are provided and verified, the loan file returns to underwriting for a final review. If the underwriter is satisfied that all conditions are met, the loan receives final approval, often called “clear to close,” signaling the lender is ready to finalize the transaction.

Preparing for Closing

With final loan approval, preparation shifts to closing, the formal completion of the loan transaction. A primary step for the borrower is to review the Closing Disclosure (CD), mandated by the TILA-RESPA Integrated Disclosure (TRID) rule. The lender provides this document at least three business days before the scheduled closing date.

The Closing Disclosure provides a detailed breakdown of final loan terms, including interest rate, monthly payment, and all closing costs. It specifies the “cash to close” amount, which includes your down payment and any remaining closing costs due at settlement. Compare the figures on the Closing Disclosure to the initial Loan Estimate to identify discrepancies. If differences or questions arise, contact your loan officer for clarification.

Coordination of the closing date and time involves your lender, the closing agent or attorney, and other parties. The closing agent or attorney prepares all necessary legal documents and facilitates the signing process. On the day of closing, borrowers bring a valid government-issued identification and certified funds, such as a cashier’s check or wire transfer, for the “cash to close” amount.

The Closing and Funding Stages

The closing appointment represents the culmination of the loan process, where all parties formally complete the transaction. At closing, you sign many documents, including the promissory note (your promise to repay) and the mortgage or deed of trust (securing the loan with the property). Other documents confirm information accuracy, acknowledge disclosure receipt, and finalize financial and legal aspects.

Various parties are present, including the borrower, the closing agent or attorney who facilitates signing, and a representative from the lender or seller. The closing agent ensures all documents are properly executed and witnessed. Once all necessary documents are signed, the funding process commences.

Loan proceeds are disbursed according to the agreement, often wired directly to the title company or other designated parties. For mortgages, after funding, the deed and mortgage are recorded with the local government authority, officially transferring ownership and establishing the lender’s lien on the property. After closing, you receive copies of all signed documents for your records. The loan then transitions to loan servicing, where you make regular payments and manage your loan account.