It Ain’t Over ‘Til the ‘Funding Lady’ Sings

Written by Posted On Thursday, 12 August 2021 00:00

If you think your new mortgage loan is official once you’ve signed your closing papers, you might want to rethink that. Sure, you’re pretty darn close to a brand new loan, but you’re not completely there. When your loan is officially approved by the lender and closing documents are ordered, there were several stages your application went through before papers could be ordered.

When your loan officer contacts you and lets you know your loan has been approved, it’s very possible there are still some outstanding conditions attached to your approval. Your loan could be conditionally approved. This simply means there are some additional things that still need to be addressed. These additional things are called ‘loan conditions.’ The more important conditions are those that need to be fixed before closing papers can be ordered. 

Lenders refer to these items as ‘pre-doc’ conditions, or items that need to be addressed before loan documents can be ordered. These are the more important set of conditions. The loan can’t reach the next stage until these conditions have been satisfied. A common condition might be that a gap in employment must be explained. Or there is something on the credit report that needs to be fixed. Perhaps someone else’s credit is showing up on your own credit report. Once the pre-doc conditions have been satisfied, closing papers can be ordered and delivered to your settlement agent.

At your closing, you’ll sign your fair share of documents. Once you’ve signed and initialed where needed, the papers are notarized and delivered back to the mortgage company. But the loan isn’t fully approved. It hasn’t officially ‘funded.’ In most cases at your closing the settlement agent will even hand over the keys to your new home but while it’s not official, it’s very, very close.

The loan approval will also likely have prior-to-fund conditions. At your closing you might be asked to bring an updated paycheck stub. Credit documents in a loan file must be less than 30 days old and many times the paycheck stubs in the loan file have expired and they need to be updated. Once this is accomplished, the funding condition(s) has been satisfied. But you’re still not there.

The lender will make one last run-through to make sure all the conditions are satisfied. Are all the papers signed where needed? Is there a missing initial somewhere? Again, these are the smaller items compared to pre-doc conditions, but they still must be satisfied. It really doesn’t take very long for this one last review to be accomplished. Most of the heavy lifting has already been completed. Lenders are as keen as everyone else in the transaction to make sure the loan closes and funds in time to meet the settlement date listed on the sales contract.

Once all the funding conditions have been met as determined by the lender, the lender contacts the settlement agent and provides a code, referred to as the funding number, which lets the settlement agent release the funds needed to transfer the cash to the concerned parties. When the funding number is released, the loan is indeed final.

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David Reed

David Reed (Austin, TX) is the author of Mortgages 101, Mortgage Confidential, Your Successful Career as a Mortgage Broker , The Real Estate Investor's Guide to Financing, Your Guide to VA Loans and Decoding the New Mortgage Market. As a Senior Loan Officer and Mortgage Executive he closed more than 2,000 mortgage loans over the course of more than 20 years in commercial and residential mortgage lending. 

He has appeared on CNN, CNBC, Fox Business, Fox and Friends and the Today In New York show. His advice has appeared in the New York Times, Parade Magazine, Washington Post and Kiplinger's as well as in newspapers and magazines throughout the country. 

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