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REAL PEOPLE ... CARING ABOUT REAL
ISSUES
Applying For Your Mortgage
Want some help going step-by-step through the process of applying
for your mortgage loan? Learn what to expect and what your options
are.
Keep in mind, there is no substitute for a direct relationship
with a reputable
mortgage lender. Mortgage can be complicated, and every state
has different laws and regulations. Your mortgage lender will
know the laws and regulations. So turn to your lender for help
if there's something you don't understand.
Buying a home is stressful and the process of applying for and
qualifying for your mortgage is one of the most stressful financial
transactions you'll ever make. We all worry that we're not going
to qualify and that could end our dream of being a home owner.
We think if you know what the mortgage process is all about and
what your lender is looking for you'll find applying for your
mortgage isn't as bad as you think. Mostly it's just time consuming,
but wouldn't you expect that from one of your biggest financial
decisions? So, keep it all in perspective.
This material will help you understand the mortgage process.
Section 1: What to expect
When completing an application you don't really have to tell
your mortgage lender everything about your whole life. All your
lender needs to know about is your employment and finances, and
information about the house you're buying. But you do need to
provide quite a bit of detail, backed up by documentation about
each of these topics.
The best way to make the application process easier and faster
is to be prepared for it. Have the necessary information all assembled
and ready to use before you start to fill out the application.That
will help speed up the process for you.
Next, let's look at the information your lender will most likely
need to know. Each lender has different procedures and requirements,
so you'll find it useful to review this material with your lender.
The home you're buying serves as the collateral for the loan,
your lender is going to want to evaluate the home through an independent
appraisal company. When you make your application you
will need to provide:
- A complete copy of the sales contract (including all addenda
signed by all parties), the full names of the sellers and buyers
as they will appear on the new deed, the amount of earnest money
deposited, and who will be responsible for the closing costs,
origination fees and any other fees.
- You'll need the mailing address and description of the property.
The mailing address must be a complete description meaning the
type of property (single family home, town house, condominium,
etc.).
- Contact information for the appraiser to gain access to the
property. You'll need the name, address and telephone number
of the real estate agent and/or seller of the property who can
let the appraiser inside.
- If your doing new construction, you'll need a complete set
of plans and architectural specifications specifications.
Your lender is going to need some of your personal information.
They will need a detailed and accurate picture of your financial
situation. This means, you and your spouse (or other co-borrower(s))
must provide a good deal of personal information to your lender,
be prepared to share your whole financial history. Let them ask
you for it one piece at a time, but have it with you and ready
to present.
Your personal information includes your social security number,
age, number of years of schooling, marital status, number and
age of dependents, and your current address and telephone number.
If you've lived at your current address for less than two years,
be ready to provide your addresses for the past seven years.
You'll also be asked for your current housing expenses, including
rent or mortgage payments, real estate taxes, homeowners insurance,
and the name and address of your landlord(s) or mortgage lender(s)
for the past two years.
Your employment history and income sources are going to be very
important in qualifying for a mortgage. Lenders need to
make sure you can make regular monthly payments to repay your
mortgage loan, along with the other costs associated with owning
a home. So, they're going to require detailed information about
your employment and other sources of income, including:
- At least two years of verifyable employment history. This
information should include your employer's name, address, telephone
number, your job title or position, how long you held the job,
and all financial information including salary, bonuses, commissions
and average overtime pay. The mortgage lender will mail a form
to your employer and previous employers (if you've held your
current job for less than two year) to verify the information
you provide.
- The mortgage lender is going to need pay stubs and W-2 forms.
The pay stubs should be from recent paychecks; W-2 forms for
the last two years. Many lenders will require copies of your
entire federal tax return, depending
on your situation.
- If you are self-employed, be prepared to provide complete
tax returns and financial statements
for the last two years, along with a profit-and-loss statement
for the current year.
- The lender will ask for a written explanation if there are
gaps in your employment. If for any reason, like illness, layoffs
or other factors, there are gaps in your employment record over
the past two years, be prepared to provide your lender with
this written explanation.
- The lender will also want any records of dividends and interest
received from any investments. The form 1099s provided annually
for your tax records are ideal
for fulfilling this requirement. If this doesn't apply to you,
then don't worry about it and just say "none" when
asked about investments of this type.
- You'll need proof of any other income you rely upon. This
can include rental properties, social security or disability
payments, child support, and so on. Proof of these sources of
income could be canceled checks, copies of leases, certification
of benefits, divorce decrees, or other written evidence. You
do need something in writing though.
Your lender needs to know the personal assets available to you,
so you should be ready to furnish information about bank accounts,
investments and significant pieces of property, including:
- Show proof of all your bank accounts. These should include
checking, savings and money market accounts. For each account,
be prepared to provide the name and address of the institution,
the name(s) on the account, the account number and the current
balance.
- You will be asked to sign a form that will be sent to your
bank(s) to verify the information you provide. If there are
differences, you'll have to account for them, so be sure you
provide correct balance information.
- Plan on providing statements for at least the last two months.
- Be prepared to provide the current values of stocks, bonds,
CDs and other investments, including mutual funds as well (available
from newspaper stock tables).
- Tell the lender your vested interest in retirement
funds, including any IRAs, SEP-IRAs, Keogh plans or other
personal or company-maintained retirement funds (available in
annual or quarterly reports from your retirement fund).
- If you have life insurance information,
including the face amount and cash value of life insurance policies
in force (available in annual or quarterly reports from your
insurance company, or from the policy), your lender will want
this information too.
- Lenders will want automobile information, including the make,
model and year of any vehicles you own.
- Lenders are looking for all real
estate information. The address and market value of any
properties you own, along with the rents collected, the mortgage
on the property and the monthly mortgage payments. A profit-and-loss
statement is required for investment properties.
- Be prepared to give the fair market value of significant personal
property, including furniture, artwork, jewelry, photographic
or computer equipment, and the like.
- Your lender will also want to know where you will get the
funds for your down payment, closing costs and other fees. Gifts
may be used for this purpose, but must be verified in writing
(and that includes gifts from relatives). If you're providing
less than five percent of the sales price in down payment, the
gift must come from a relative, along with a letter stating
the person's relation to you, the amount of the gift and that
no repayment is expected. It must be signed and dated.
Just as your lender needs to know what assets you have, they
will want to know how much your liabilities are, what you owe,
and about your credit history. You should be prepared with the
following information:
- An itemized list of current debts. This list will include
all current bills you owe and loans you may have: automobile
loans, bank and credit union loans, any existing mortgages or
home equity loans, and outstanding balances on credit cards
such as Visa/MasterCard/any credit cards in your name. Debts
also include any alimony, child support or maintenance payments
you're required to make. You should include all unsecured
debt here (credit cards, medical
bills owed, signature loans owed, etc.).
For each separate account or loan on your list, you should
include the account or loan number, the monthly payment (if
fixed), the number of payments remaining and the outstanding
balance.
- Credit report. You
do not need to provide your lender with a credit report, but
your lender will get one independently to verify the information
you provide. And any differences between what you tell your
lender and what's in your credit report will have to be resolved
before your mortgage can be issued. For that reason, some home
buyers may want to order a
credit report for their own review before they complete
their application. That way, if there are any errors or discrepancies
you can take steps to correct them.
If you have any reason to believe your credit report may contain
incorrect information, you should make every effort to correct
it before you make your application. You can order
a copy of your credit report by contacting one of the three
major credit bureaus: TRW, Equifax, and Trans Union.
If you've have credit problems, do not try to hide them. Tell
your lender candidly, and explain what happened. Lenders recognize
that there are many legitimate reasons for difficulties with credit,
such as unemployment, illness, marital problems or other difficulties.
Provide a written explanation of the circumstances to your lender,
and your explanation will be considered during the approval process.
Generally, if the problem has
been corrected and your payments have been on time for a year
or more, your credit will probably be considered satisfactory.
However, chronic late payments, loan defaults or judgments against
you may damage your credit standing and prevent you from obtaining
your mortgage. If you have been through bankruptcy
proceedings within the last seven years, you should be prepared
to provide complete details along with supporting documents regarding
your bankruptcy and the reason behind it.
Once you and your lender have completed your application (or
just you, if you're doing it yourself), you will be asked to certify
the information with your signature. You must also promise to
notify the lender of any important changes in your status.
Finally, you agree that your lender can verify the information
you've provided by making contact with all people and agencies
you've listed, and agree to allow them to submit your account
history to credit reporting agencies.
In addition, you'll be asked for information on your race and
gender. This is used by the federal government to monitor compliance
with fair housing and equal credit opportunity laws. Even though
your lender is required by law to ask for this information, you
don't have to provide it. Iit's strictly voluntary on your part
and will have no effect on your loan application.
Most lenders ask applicants to pay for the credit report and
appraisal at the time the application is completed. These fees
are generally less than $500.
Section 2: Your Application Checklist
Here's a helpful checklist. Please note that all requested information
must be provided by you and your spouse/other co-borrower(s).
• Purchase contract and property information
o Complete copy of the sales contract
o Mailing address and property description
o Contact information for access to the property
o Plans and specifications (new construction only)
• Personal information
o Social security number
o Age
o Years of schooling
o Marital status
o Number and age of dependents
o Current address and telephone number
o Addresses for past seven years (if more than one)
o Current housing expenses (rent, mortgage, insurance, taxes)
o Name and address of landlord/mortgage holder (past two years
only)
• Employment history and income
• Two years of employment history, with complete details
of each job
• Recent pay stubs and 2 years of W-2 forms
• Complete tax returns and financial statements if self-employed
• Written explanation of employment gaps
• Records of dividends and interest received
• Proof of other income
• Assets
o Complete information on all bank and money market accounts
o Two months of bank statements
o Current values of stocks, bonds, mutual funds and other investments
o Vested interest in retirement funds
o Value of life insurance
o Information on any cars you own
o Information on any real estate you own
o Value of any significant personal property you own
• Liabilities and debts
o Itemized list of all current debts: loans and credit card and
other bills
o Written explanation of any past credit problems
o Full details of bankruptcy during the last 7 years, if applicable
o Fees
o Credit report and appraisal fees (usually $500 or less)
Section 3: What happens next?
For many home buyers, there's a huge sigh of relief that the
worst of the application process is over. For the lender, however,
the real work is just beginning. Your application, along with
all the supporting information you've provided, is turned over
to the lender's loan processing department, and then to the underwriter.
The loan processing department is responsible
for verifying all the information you've provided.
The Verification of Employment and Deposit
forms you signed while applying are sent out to employers and
former employers, your credit report is ordered, and arrangements
are made to have the home you're buying appraised. Other documents
that may be required are also ordered.
Don't be too worried if one of your former employers refuses
to cooperate or if your employ with them ended badly, and they
try and say bad things. Mortgage lenders deal with these issues
all the time and will work with you on it. So, it may or may not
have an effect on the results of your loan application.
Getting all these documents returned affects how long it will
take to approve your application. If you're just moving from one
neighborhood to another in the same city or area, the process
will probably move faster than if you're moving to an entirely
new city or community.
The information your lender receives during the verification
process must agree with the information you provided. Any discrepancies
must be resolved before the application process can be completed.
This will take time which is why it's so important to provide
accurate information on your application.
Next, the underwriter receives your application
along with the verification information provided by the loan processing
department. Here is where all the information is reviewed and
considered, and the final decision to approve or decline your
loan is made. The loan officer you work with does not decide whether
to approve or decline your mortgage, the underwriter does.
The underwriter's decision is based on mathematical models that
incorporate all the data that's been provided on the home you're
buying, your income, your employment, your assets, your liabilities,
and your credit history. Each mortgage company develops its own
approval standards.
You should expect the approval process to take about 30 days.
Your mortgage lender should be able to give you a fairly accurate
idea when you complete your application.
Within three business days, after you complete your application,
you should receive two separate pieces of information from your
lender.
First is a Good Faith Estimate of your
closing costs. This document lists the costs you can expect to
pay at the closing and settlement of your mortgage, if it is approved.
These costs include such items as the loan origination fee, mortgage
insurance, title insurance, escrow reserves and hazard
insurance.
Second is a Truth-in-Lending Disclosure
statement. This statement provides important information about
the mortgage you've applied for, including your estimated monthly
payment. It also shows the total cost of all finance charges,
stated as an Annual Percentage Rate (APR). The
APR includes all finance charges, origination fees and other charges
in addition to the interest on the mortgage; and converts all
of them to an annual interest rate. As a result, the APR is usually
higher than the interest rate alone.
Lenders want to approve loans and if you've provided complete
and accurate information, along with supporting documentation
on your application, you've already helped assure that your application
will be processed promptly.
Most lenders will request more information or clarifications,
just provide that information as quickly and completely as you
can.
Stay available to your lender. If you have travel plans, for
example, you may want to provide a telephone number where you
can be reached, or use your realtor as a contact person. That
way you can avoid delays.
If you have questions, you can call your loan officer, or you
may be given a person in the loan processing department to contact
about the status of your application. But keep in mind that processing
your loan will take several weeks under the best circumstances
and calling all the time to ask about it won't speed it up one
bit.
Section 4: Getting the news and what's next
When your loan is approved, the lender usually
notifies you in a letter of commitment. Although if your closing
is scheduled to occur very soon after the approval is granted,
you may get a verbal commitment instead of a letter.
Your commitment letter will include the terms
of your mortgage, including the interest rate and points, and
specify how long the terms are offered. If you settle on your
loan within that time, the terms apply; if you don't, the terms
are subject to change.
If the loan is eligible for government insurance or guaranty,
you'll receive a written agreement from the appropriate government
authority (FHA or VA).
If your down payment is less than 20 percent of the total purchase
price for a conventional mortgage, you'll receive an application
for the required private mortgage insurance.
Generally, you must accept the commitment letter by returning
a signed copy to the lender within five to ten days. You may also
have to pay part or all the origination fee at this time.
Regardless of how you receive your commitment, you should make
sure you understand all the terms and conditions completely. If
you have any questions, ask your mortgage lender.
If your loan is not approved, your lender must
notify you within 30 days from acceptance of your completed application.
This notification must also include an explaination by the lender
so you will understand why. Your lender can help explain what
steps you can take to correct any problems, so you can reapply
in the future.
To continue the approval process, once you've
received your loan commitment, the next step is to close
your loan and buy your home.
There's a lot of information to read through on
the Debt Education website, but we feel this is extremely important
material. We strongly recommend that you bookmark
this page right now. This will allow you to read
at your leisure, and should you need to attend to other matters,
easily return back here at your convenience.
The Debt Education website was built for you. Please explore
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every aspect of financial planning and money management. These
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