What Happens When Your Loan “Funds”

The one term that loan officers like to hear is the word “fund.” Why? Because it signals the loan approval process has come full circle and the loan is officially closed. There are multiple stages in the loan approval process and each stage must be completed before the next can be taken on. Initially, it’s the application stage. After a conversation we will provide you with your preapproval letter upon receipt and review of your application.

The Loan Approval Process

You can get prequalified over the phone, but these days real estate agents and sellers want to see a preapproval letter, not a prequalification letter. A prequalification letter simply means you’ve spoken with a loan officer but nothing that you’ve talked about has been verified. A preapproval means not only have you had a conversation and submitted an application, but the important information has been verified. Paycheck stubs, income tax returns, credit reports, they’re all required to get to the preapproval state.

Next in the loan approval process, your loan will be documented as various third party services are ordered and supplied. Once the documentation phase has been completed it moves over to the underwriter. The underwriter will review the file and list any conditions that must be met before loan papers can be delivered.

Common Conditions

There are Prior to Close and Prior to Fund conditions. Prior to close conditions mean the file can’t be sent to the settlement agent until certain questions have been answered or additional documentation provided. Once completed, loan papers can then be delivered to the settlement agent. You will set a time to attend, sign or initial the documents where needed and leave. This means the loan approval is on track.

A prior to close condition might be something like missing a paycheck stub. Income must be documented over a 30 day period and if you get paid on the 1^st and 15^th but the 15^th paycheck is missing, papers won’t be delivered to your closing until the 15^th stub is presented. Once all prior to close conditions have been met, loan papers are delivered electronically to your closing.

A prior to fund condition is a condition that is less important than a prior to close but still needed. A prior to fund condition might be updating an expired document residing in the loan appproval package. That paycheck stub on the 15^th? Maybe the stubs in the file are more than 30 days old. All credit documents in a loan approval package need to be within a 30-day window.

This is a common condition because most buyers get their preapproval and submit their paycheck stubs and then go shopping. It might be several weeks or months before a property is found and a contract signed. Still, the prior to fund condition must be satisfied. A prior to fund condition means the file has gone through underwriting and the buyers and sellers have signed all the necessary paperwork. All that’s missing are any prior to fund conditions.

Okay, but what exactly does it mean when a loan funds? It means the lender has delivered the funds needed to finance the mortgage. It means the loan approval process has come to an end and the loan is finally closed.

Takeaway

There are many moving parts during the loan approval process and our main job is to make sure you get from the application stage to final funding. When you hear me say, “Congratulations, your loan has funded” it means it’s all over and you’re now an official homeowner.