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MLO Training e-Learning: Buyer Gets Signed Purchase Contract
The following is a summary of the homebuying and mortgage process.
- The initial step in purchasing a home is to determine eligibility by meeting with a mortgage loan originator (MLO).
- The MLO will inquire about the desired property type, location, comparable home prices, estimated property taxes, and homeowners’ insurance.
- To assess eligibility, the MLO will review the applicant’s financial information, as well as that of any co-borrower.
- Required documentation includes two years of W-2 forms for hourly or salaried employees, or two years of business and personal tax returns for self-employed individuals or those receiving 1099 income, in addition to 30 days of recent pay stubs.
- If income is irregular or includes overtime or part-time work, the mortgage processor may verify employment to obtain an accurate income assessment.
- Creditworthiness is evaluated using a tri-merge credit report, with the middle score serving as the qualifying metric.
Automated Underwriting System (DU or LP Findings)
After reviewing income, debts, assets, and credit, the MLO submits the file to the automated underwriting system (AUS), which provides one of three outcomes:
- Approve/Eligible
- Refer/Eligible
- Refer/With Caution.
- Approve/Eligible indicates system approval
- Refer/Eligible suggests potential qualification, but requires manual review
- Refer/With Caution signifies that the application does not meet basic eligibility requirements for programs such as HUD, VA, USDA, Fannie Mae, or Freddie Mac, often due to factors like insufficient time since bankruptcy or recent late payments.
When Does a Loan Originator Issue a Pre-Approval Letter
- Upon qualification and AUS approval or satisfaction of manual underwriting guidelines, a pre-approval letter is issued.
- At this stage, the home search with a real estate agent may begin.
- Once a property is selected and a purchase price is agreed upon, both parties sign the purchase contract, which is then forwarded to the MLO, officially initiating the mortgage process.
The Loan Estimate
- Entry of the property address into the loan application system marks the start of the official loan application, after which the lender has three business days to provide a Loan Estimate.
- The Loan Estimate, which replaced the Good Faith Estimate, outlines the anticipated fees and costs associated with the process.
- Borrowers may notice that the Loan Estimate often lists higher costs than those ultimately incurred, which is permissible.
- If a loan officer underestimates a cost by 10% or more, the officer is required to pay the difference, even for costs unrelated to the lender, such as inspections or title charges.
For further details regarding the Loan Estimate, refer to the attached guide.
https://gustancho.com/loan-estimate/
gustancho.com
Everything You Need To Know About the Loan Estimate
HUD's GFE, which was created in 2010, and replaced by CFPB's Loan Estimate. HUD Settlement Statement is replaced by the Closing Disclosure
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MLO Training e-Learning: Procedures Following Buyer’s Execution of Purchase Contract
GCA Mortgage Forums | Mortgage Loan Originator Training
Procedures following the execution of a purchase contract by the buyer. Once the buyer signs the purchase contract, the mortgage process moves from pre-approval to active loan processing. The MLO reviews the contract, updates the application, checks financing details, works with the LOA and processor, and manages all deadlines.
A signed purchase contract does not guarantee final mortgage approval, as both the borrower and the property must still meet underwriting standards.
Step 1: Review the Signed Purchase Contract
The MLO should promptly obtain and review the signed purchase agreement, including all addenda and amendments.
Check the purchase price, property address, deposit amount, seller credits, financing and appraisal conditions, and closing date.
Watch mortgage commitment and contingency deadlines closely because missing any could stop the whole transaction.
Step 2: Update the Mortgage Application
Update the Uniform Residential Loan Application (Form 1003) in the loan system. Confirm the purchase price, loan amount, down payment, estimated property taxes, homeowners insurance, HOA fees, seller credits, and anticipated closing date.
Double-check the borrower’s job, income, assets, credit, and debt-to-income ratio. Address any big changes since pre-approval immediately.
Step 3: Confirm Loan Program and Underwriting Eligibility
Determine whether FHA, VA, USDA, conventional, or non-QM financing is still the best choice. Underwrite through Fannie Mae Desktop Underwriter (DU) or Freddie Mac Loan Product Advisor (LPA), as applicable. If automated underwriting denies the loan, consider manual underwriting if the program and investor allow it.
At GCA Mortgage Forums, borrowers with credit issues, high DTI, or a history of bankruptcy may qualify for alternative financing options.
Step 4: Coordinate the Loan Estimate and Disclosures
For TRID-covered mortgages, the lender must usually send the Loan Estimate within 3 business days after receiving the 6 required application items.
A signed purchase contract does not trigger the deadline by itself. Check estimated interest rates, discount points, closing costs, prepaid expenses, escrow deposits, and cash needed. Make sure the borrower clearly understands their estimated monthly payment and all loan terms.
Step 5: Transfer the Loan File to Processing
The MLO or LOA should gather a complete mortgage file for processing. Include the signed purchase contract, updated loan application, credit report, income documents, bank statements, ID, automated underwriting results, and extra explanations if needed. Identify underwriting red flags before submitting the file, such as recent late payments, disputed accounts, employment gaps, large deposits, or a history of bankruptcy. The processor then takes the reins on documentation, third-party services, and underwriting submissions.
Step 6: Order Appraisal, Title, and Insurance
Coordinate with the right parties to start the appraisal, title work, and homeowner’s insurance check. Appraisals must follow independence rules. The MLO should never try to influence the appraised value. Spot possible property issues early, like needed repairs, condo rules, manufactured home rules, or unusual features.
Step 7: Submit the File to Underwriting
- The processor then submits the completed mortgage package to underwriting.
- The underwriter will assess credit, income, employment, assets, liabilities, and property eligibility.
- Conditional approval might require updated financial information, job verification, explanations for deposits, or additional documents.
- The MLO and the processor should work together quickly to resolve any remaining issues.
Step 8: Maintain Communication With the Buyer and Agents
Keeping in touch at every step helps ensure on-time closing and prevents last-minute surprises. The MLO should keep everyone informed with regular updates and clearly explain what the borrower needs to do next.
Borrowers should avoid opening new credit, making big purchases, large unexplained deposits, or changing jobs without considering how it might affect their mortgage.
Agents should give transaction updates while keeping borrower information private. Once all underwriting conditions are met, the lender can give final approval or ‘clear to close’. For most TRID mortgages, the borrower must receive the initial Closing Disclosure at least three business days before consummation. The MLO should carefully check the final mortgage terms, closing costs, borrower’s funds, and all settlement details.
Closing and Funding
At closing, the buyer executes the mortgage documents, including the promissory note and the security instrument.
The settlement agent handles signing, recording, and payment in accordance with the rules. The MLO must confirm the loan is closed and funded before considering the transaction finished.
MLO Training: Common Mistakes to Avoid
- Not checking the purchase contract deadlines.
- Approval information that is out of date.
- Missing changes in borrower’s job, income, or credit.
- Putting off the appraisal or title work.
- Sending incomplete underwriting documents.
- Not communicating with borrowers and processing teams.
- Thinking ‘clear to close’ means the transaction is funded.
Practical Training Scenario
A borrower has signed a $350k purchase contract with a 30-day closing and intends to use FHA financing. The MLO must review the contract, update the mortgage application, check the down payment and debt-to-income ratio, and manage disclosures and processing.
If underwriting identifies a problem, the MLO should resolve it before the financing deadline. Starting communication early and fixing problems before they get worse are essential.
Final Thoughts
A signed purchase contract starts the fastest, most deadline-focused part of the mortgage process. The MLO manages contract review, financing checks, processing, underwriting, and closing while closely monitoring every deadline. Good mortgage originators find problems before they cause delays. A well-organized loan file, strong teamwork, and regular communication with the borrower help ensure a smooth transition from contract acceptance to closing. The MLO’s duties extend beyond pre-approval and continue through underwriting, closing, and funding confirmation.
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