Buying a home may be the most exciting, confusing and stressful financial transaction you ever undertake. Even if you have done it before, you can still find the process complicated and intimidating, particularly when it comes to getting a mortgage loan.
The loan application asks for information on the property, terms of the purchase contract, employment and financial history of all loan applicants, including your spouse and/or other co-borrowers. The lender will verify or not, to approve the loan, so it is very important to submit a complete and accurate application.
You can complete the loan application process easier if you prepare for it ahead of time. A great amount of detail will be asked about your personal finances, including bank account numbers and balances, current loan amounts, payments, and credit card account numbers. You will want to be thorough and precise in your answers. It will be to your benefit to assemble it this kind of information before the meeting with the loan officer. The following is a summary of information required on the loan application, documents you may need to provide and the questions you should be prepared to answer.
Details of Purchase Contract and the Property
Because the property is security for
the loan, the lender will have an appraisal made of
the property, and you need to have the following information
available:
Your ability to make the regular payments
on the mortgage and to afford the costs associated with
owning a home are primary considerations is the lender's
loan approval process and should be your primary concern.
Required information includes:
- At least two years employment history
with employer's name and address, your job title or
position, length of time on the job, salary, bonuses,
commissions and average overtime pay.
- Recent paycheck stubs and Federal
W-2 forms for two years (some lenders may require
full Federal tax returns).
- Records of dividends and interest
received from investments.
- If you are self-employed, full tax
returns and financial statements for 2 years, plus
a profit and loss statement for the current year to
date.
- A written explanation if there are
gaps in your employment record, because of circumstances
such as illness, layoffs, or for any other reason.
The loan officer may have you sign a
Verification of Employment (VOE) form. This will be
sent to your employer to verify your employment and
earnings. One will be sent to previous employers if
you have been on the job less than two years. Many lenders
now use a general authorization form which allows them
to verify employment and other financial information
on the application.
If you are relying on income from other
sources, such as rental property, social security or
disability payments, child support, etc., you must provide
adequate proof of the source. Appropriate documents
could include canceled checks, copies of leases, certification
of benefits, divorce decrees and similar evidence.
Personal Assets
A detailed listing of your personal assets
is required on the loan application form. You will need
to have the following information available to complete
the form:
- All bank accounts, both checking and
savings, and money market accounts, with the name
and address of the institution, name(s) on the accounts,
account numbers and current account balances.
- Recent bank statements for at least
two months.
- Current market value of stocks, bonds,
CDs and other investments.
- Vested interest in all retirement
funds.
- Face amount and cash value of life
insurance policies in force.
- Make, model, year and value of automobiles
owned.
- Address and market value of all real
estate owned along with the amount of rents collected,
the mortgage on the property and the monthly mortgage
payments (a profit and loss statement will be required
for investment properties).
- Value of other personal property such
as furniture.
As with the Verification of Employment,
the loan officer will have you sign Verifications of
Deposit (VOD) for each of the institutions (or a general
authorization) where you have savings or checking accounts.
Differences between account balances reported
by the institution and balances you provided on
the loan application have to be reconciled. Be sure
you have correct current balances.
The lender will look for the source of
funds with which you will make the down payment and
pay closing costs and fees. Gifts from a relative, church,
municipality or non-profit organization may sometimes
be used, but must be verified in writing. If you are
providing less than 5 percent of the sales price, the
donor must be a relative and must provide a letter stating
the donor's relationship to you, the amount of the gift
and the fact that no repayment is expected.
Personal Indebtedness
You will be asked to itemize all your
current bills, loans and other debts, including current
balances and monthly payments. Debts include automobile
loans, credit cards such as Visa, Mastercard and other
retail store accounts, finance company, bank and credit
union loans and existing mortgages, including home equity
loans. You should be able to give the account or loan
number, the monthly payment, the number of payments
remaining and the outstanding balance.
The information you provide on the loan
application will later be verified by a credit report
requested by the lender. As with employment and deposit
information, differences between your figures and those
on the credit report will raise questions and may delay
the approval of your loan. It is to your advantage to
have data correct, right prior to filling out the loan
application.
If you have had credit problems, you
should inform the lender. Lenders recognize that unemployment,
illness, marital problems or other financial difficulties
can temporarily impair your credit rating. Provide a
written explanation of the circumstances regarding the
problem to be included with the loan application. The
lender must consider such a written explanation as part
of the underwriting analysis. If the problem has been
corrected and your payments have been made on time for
a year or more, your credit will probably be judged
as satisfactory. Chronic late payments, judgments or
loan defaults, however, severely damage your credit
standing and may prevent you from obtaining the financing
you need to complete the purchase.
If you have been through bankruptcy or
foreclosure proceedings within the past seven years,
be prepared to give full details and copies of applicable
documents regarding them.
You will also be asked to explain the
details if you are obligated to pay alimony, child support
or separate maintenance. Such obligations are treated
like debt payments by most lenders and will be part
of the underwriting analysis.
Additional Information
You will be asked to sign a section of
the loan application which contains your certification
that the information you have provided is correct to
the best of your knowledge; your promise to advise the
lender of any material changes in the information and
your consent to (1) verification of the application
data, (2) submission of account history to credit reporting
agencies, and (3) transfer of the loan or loan servicing
to successors to the original lender.
The last part of the application requests
information on the race and gender of the applicants.
The Federal Government uses this data to monitor lenders'
compliance with fair housing and equal credit opportunity
laws. Providing this information is strictly on your
part and has no effect on your loan application. The
lender, however, is required by federal law to request
the information. Under Federal Regulations, this lender
is required to note race and sex on the basis of physical
observation or surname.
Because of the particular circumstances
surrounding a loan application, the lender may require
additional information or documentation regarding you
or the property after the application has been submitted
for approval. Loan officers make every effort to collect
all data at the outset, but cannot foresee every eventuality.
Requests for additional information are not necessarily
bad omens and your primary concern should be in responding
promptly with the information.
Based on the application, the loan
officer may be able to pre-qualify you, but cannot approve
the loan. That is done by the lender's underwriters
after all documents and information have been received
and verified.
After The Loan Application - What Next?
After the loan application has been completed,
it will be forwarded to the lender's loan processing
department and then to an underwriter, where the decision
to approve or reject the loan will be made. Loan processors
send out Verifications of Employment and Deposit and
order the credit report, property appraisal and other
documents. The time it takes to receive these documents
affects the length of time required for approval of
the loan. If you are transferring from out of the local
community, it may take longer to receive the credit
and employment information. Processing times vary from
one lender to another, but the loan officer should be
able to give an idea of the processing time for your
application.
Within three business days after receiving
the application, the lender must provide you with a
Good Faith Estimate of the anticipated closing
costs. It will show costs associated with the loan settlement,
such as origination fees, mortgage insurance, title
insurance, escrow reserves and hazard insurance.
Truth-in-Lending Disclosure
Within the same three days you will also
receive a Truth-in-Lending Disclosure statement.
This statement shows, among other things, the estimated
monthly payment. The total cost of all finance charges
on your loan is also shown, stated as an Annual Percentage
Rate (APR). The APR represents the dollar amount
of finance charges you pay either up front or over the
life of the loan, converted to an annual interest rate.
Since the APR includes origination fees and other
charges as well as interest on the mortgage loan, the
APR is usually higher than the interest rate on the
loan.
After the lender has approved the loan,
you will usually receive an approval letter . If the
loan does not close within the specified commitment
period, the terms are subject to change.The approval
may contain conditions you need to satisfy, so you should
read it carefully.
In cases where closing is scheduled soon
after approval, the lender may give you verbal approval
instead of an approval letter. This is not unusual,
but make sure you understand the terms of the approval.
Once the approval letter has been received,
you are assured the financing you need to complete the
purchase of your home and you need to turn your attention
to completing the details required for settlement.
Reducing The Anxiety of Waiting
For many home buyers, the period of time
between submission of the loan application and approval
is one of uncertainty and concern. Requests for additional
information, unexpected delays and lack of communication
all serve to increase the tension. There are a number
of things both you and the lender can do to reduce the
stress.
Keep in mind the lender wants to make
the loan. Loan underwriters are looking for ways to
approve loans, not reject them. If you have come to
the interview with the loan officer fully prepared and
have provided good documentation, you have done a great
deal to assure prompt processing of your application
and approval of your loan.
You and the lender need to make sure
that lines of communication are kept open. Your contact
person may be the loan officer, but often it might be
someone in the lender's loan processing department who
can tell you the status of your application.
You should be accessible if the lender
needs additional information or documents during processing.
If you are from out of town, use your real estate agent
as a contact, if necessary. Quick response to lender
requests helps keep the process on schedule. In order
to protect both you and the lender, mortgage loans require
much more paperwork and legal documentation than an
automobile or other installment loan, and lenders do
not ask for more than is absolutely necessary.
Obtaining a mortgage loan need not be
an ordeal that dampens the thrill of acquiring a new
home. If you understand the lending process and are
prepared to do your part, it simply becomes a key step
in owning a home.
