Loan approval is a key part of the lending process. It allows lenders to assess your ability to repay and determines the size of a mortgage or interest rate you qualify for.
While the loan approval process varies depending on what type of 아파트담보대출 credit you’re seeking, there are four major steps to take.
The Conversation
The process of loan approval varies depending on whether the request is for a personal loan or for commercial financing. However, both processes begin with a conversation between the lender and the applicant. During this phase, the credit team performs a thorough analysis of a potential borrower to determine their ability to service debt and if there are any mitigating factors to the risks involved with a particular request. Once this analysis is complete, the team prepares a loan approval document that is sometimes referred to as a credit memo. This document includes insights pertaining to the debt capacity of the borrower, financial analysis of the company, information about guarantors and the lender’s assessment of their ability to cover any shortfalls in debt servicing. This documentation is then reviewed by the loan processor assigned to the request.
Pre-Qualification
Pre-qualification is an early assessment of what a borrower might be eligible for, typically based on information handed over by the consumer. Getting pre-qualified can help speed things up as borrowers find a home, and it also allows lenders to identify errors in credit reports or documentation that could affect the loan approval process later on.
The pre-qualification process varies by lender, but it usually involves describing your financial profile and providing estimates of your current credit, debt and income. Some lenders will do a soft inquiry (which does not impact your credit) to see if you can qualify, while others may require a full application with tax returns and bank statements. Check for language that indicates you’re pre-qualifying versus a full application to avoid any potential confusion.
The Credit Application
The loan application requires a borrower to fill out personal and financial information including identity, employment, income, and credit. Lenders will use the information provided to assess an applicant’s risk and determine terms of the loan.
If the size of a loan request exceeds a credit officer’s approval authority, it will be referred to a senior credit officer or for amounts beyond a certain limit, a credit committee. The credit team performs a full analysis of the company seeking to borrow that includes assessing business and financial risk, cash flow forecasts, and a debt service coverage ratio (DSCR) estimate.
This process may require some time. To expedite it, applicants should prepare in advance by having the relevant paperwork ready, such as bank or tax statements.
Underwriting
The underwriting process involves verifying your income, assets and debts to ensure you are able to pay your mortgage. Your lender will examine documents like bank statements, W-2 forms and paychecks. If you are self-employed, additional documentation like profit and loss statements may be required.
Unusually large deposits, unexplained credit card activity and inconsistent employment are common red flags that could cause a delay in your loan approval or require a letter of explanation. Other factors that can impact your underwriting decision include an unusually low credit score, a history of late payments or previous bankruptcy.
Once the underwriter completes their review of your file, you will receive a loan approval decision. This might be a conditional approval or a final approval for the terms you requested, or your application might be denied.
Closing
Once an applicant has made it through the loan approval process and received a written commitment from their lender, they will have completed most of the required documentation. This includes ordering an appraisal, survey, title insurance and loan documents.
During the lead up to closing, it is crucial that applicants maintain consistent communication with their lenders and promptly relay any changes in their financial status. This is particularly true if a credit score drops or a new debt is added to an existing account; a sudden drop in credit or the addition of a large amount of debt could cause an applicant to lose their loan approval.
At closing, the borrower signs all final documents and receives their keys! Closing usually occurs at the lender’s office or a title company.