It’s hard not to notice online advertisements from different companies who issue loans. Especially so when your eye catches them as you begin your initial search for more information on USDA loans. Just a few searches with the words, “USDA loans” and soon you’ll see online ads for USDA loans. What you may also see are variations on the term, “Fast approval” or “Instant approval.” Credit card companies do it and automobile companies can finance you on the spot but mortgage lenders really can’t. There is simply too much to evaluate before issuing a loan approval. Still, that doesn’t keep some lenders from making such a claim. But there are indeed stages that a loan must go through and each stage has at least some shades of an approval.
USDA Loan Prequalification
This can be done over the phone and you can in fact get a prequalification letter from a lender after a brief conversation. As you speak with the loan officer, you’re asked about how much you make each month and if there is anyone else on the USDA loan, how much that person makes as well. Then, after applying current mortgage rates and estimating an amount for property taxes, insurance and the annual guarantee fee, an estimated amount for your total house payment is made.
You’ll also be asked about any current monthly credit obligations you may have such as a credit card or an auto loan. After considering all qualifying monthly debt, your loan officer will tell you how much you can borrow. The prequalification letter used to be the acceptable standard when making an offer on a home. The seller or the seller’s agent want to make sure that you’re serious about buying a home and you’ve actually spoken to a lender.
USDA Loan Preapproval
Yet over time, real estate agents decided the prequalification letter wasn’t enough. Through a conversation over the phone, an approximate amount could be determined but nothing was verified. No credit had been run and the income wasn’t validated. Maybe the borrowers didn’t have enough funds in the bank for closing costs. For very solid reasons, a preapproval letter was the preferred document. The preapproval says that not only does the loan officer say the borrowers are qualified but their credit meets the standard, there are sufficient funds in the bank and they can afford the new home.
At this stage, the loan file has been fully documented and sent to the underwriter, the individual that makes sure the loan meets USDA requirements. One by one, item by item, the underwriter reviews credit, income, the appraisal, the title report…absolutely everything needed to have closing papers drawn. Sometimes the underwriter will still need additional information but will go ahead and give an initial approval anyway to the lender can proceed to prepare closing documents. This is a conditional approval meaning there are certain conditions the underwriter wants to have settled before the loan can close. One such common condition might be a pay check stub that is out of date or there is a page missing from a bank statement. Once the information is provided, the underwriter signs off on the file and the loan papers drawn and the stage turns into, “clear to close.”
This is where you ultimately want to be, final funding. At this point, you’ve signed your closing papers in all the right places and brought in the funds needed for closing costs. Simply signing the papers doesn’t mean you’re completely done. The loan is sent back to the lender who makes sure that yes, you did sign where you were supposed to and the settlement agent performed all the closing duties properly. There are times when the closing did not take place properly and you must resign or the agent missed something. Otherwise, once the lender has determined that all procedures were performed correctly, the funds are released. This is the last and final stage.