What Happens Once a Home Loan Is Approved?

The loan underwriting process continues up until the time of closing.

The loan underwriting process continues up until the time of closing.

You submit your application for a mortgage on your dream home and a few days later your lender calls and says the loan has been approved. Before you crack open the champagne you should realize that the underwriting process does not actually finish until you sign the dotted line. The lender makes the initial approval based upon the information you provided on your application. Consequently, a lot can go wrong between the approval and the closing date.


Lenders base initial loan approvals on the stated value of the home on the mortgage application. If you are buying a new home, the lender initially assumes that the sale price represents the property's fair market value. However, instead of taking your word for it, the lender orders a full home appraisal. A licensed inspector values the home based either on the cost of replacing it or comparing it with similar homes that have recently sold. A low appraisal could kill the deal unless the seller agrees to drop the price. The appraisal normally occurs a week or two after you receive the "approval." The underwriter can change the status from approved to declined based upon the appraisal.

Title Search

The seller's name appears on the warranty deed so you feel sure that you are buying the home from the rightful owner. However, issues relating to previously unpaid liens or improperly filed quit claim deeds sometimes mean that other parties have a legal claim on a home. After the loan is approved, the lender pays a title company to scour the court records and ensure that there are no unpaid liens on the house. In many instances the title company does not complete its report until a few days before the loan closing. An unpaid tax lien or mortgage could derail the whole loan process. If no liens are found, the lender acquires a title insurance policy from the title company. This means the title company must compensate you and the lender if title issues emerge further down the line.


You normally provide your lender with income verification such as pay stubs and tax returns at the time of application. However, employment arrangements can change pretty quickly, so on first lien mortgages your lender directly contacts your employer to ensure that you are still employed. Some lenders do this twice, once at the time of application and again just before the loan closes. A lender may check to see if you are still employed on the day of the loan closing. Additionally, the lender can check your credit report for a second time if the mortgage process lasts longer than 45 days. Deteriorating credit scores and job losses can cause the lender to cancel the loan even on the day of closing.


If the appraisal, title search and the other verification processes go to plan the lender instructs a third party such as a title company or attorney to arrange the loan closing. The closer prepares the HUD1 statement that details all of the loan costs that are paid by you, the lender and the seller. These include the funds you must pay into escrow such as your homeowners insurance premium and property taxes. You have the opportunity to review the HUD1 for accuracy prior to closing, although this sometimes occurs just a few minutes before you are due to sign. If everything looks good, you sign the loan documents and the closer disburses funds to the lender, the seller and the company that holds your escrow.


About the Author

Ciaran John began writing in 1994 with contributions to "The Hourly Press" and "The Sawbridgeworth Observer," and has since written for many online and print publications. He has 12 years experience working for financial services companies as a business banker, lender and investment representative and spent four years working in human resources.

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