When you first apply for a home loan and submit your loan application, your loan officer will provide you with a list of items needed to include with your loan file. In a completed loan application, there is information provided by you and information provided by third parties. Your paperwork will include items such as your pay check stubs covering a 30 day period and your last two years of W2 forms. If you’re self-employed, you can expect to provide the last two years of both personal and business returns along with a year-to-date profit and loss statement. Once you submit all of your documentation to accompany your loan application, it can get a little quiet on your end. But that doesn’t mean nothing’s happening. Far from it.
The lender then proceeds to order necessary third party documentation. There are multiple service providers that help complete the loan application so the loan file can be submitted to the underwriter who ultimately approves the loan. A credit report will be ordered and so will an appraisal. Title insurance is needed so a title insurance policy is ordered, and so on. You will be provided an estimate of who all these other people are and what they’re going to charge for their services. Once completed, the file goes to underwriting.
The underwriter will review the application and determine whether or not the documents and the application submitted conform to the guidelines included with the selected loan program. Once the loan meets these guidelines, loan documents are prepared and sent to your settlement agent. But sometimes, in fact most times, there will be “loan conditions.”
There are two types of loan conditions, a “prior to document” condition and “prior to funding” condition. A “prior to doc” condition means the underwriter needs something else before loan documents can be ordered. This stops the loan process. But it’s not something to be afraid of. It doesn’t mean there’s something wrong and you can’t close on your home, but it’s more likely the file is missing something important. Maybe there’s an old lien on the property that hasn’t been released or maybe the underwriter wants to see one more comparable sale in the appraisal.
A prior to funding condition means the loan papers can still be delivered to the settlement agent but the lender won’t deliver the funds for the mortgage until this condition is fulfilled. For example, credit documents within a loan must be no older than 30 days. That means a pay check stub submitted might be more than 30 days old and you need to provide a copy of your latest. A prior to funding condition is typically minor. If there were anything bigger than that, documents wouldn’t have left the lender in the first place.
WRITTEN BY DAVID REED