Explaining the Home Loan Process Part 2: – The Application
02/01/2018 Kristin Demshki
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Buying a home is not a one-step process. Most of us start by learning about the world of real estate and assessing our financial options. Next, it's time to explore the first formal step in the home loan process: the loan application.
No matter where you apply for your loan, you will probably fill out the same form. Known as the Uniform Residential Loan Application (or the 1003, after its Fannie Mae form number), this five-page document provides a lender with the basic information needed to approve a buyer. It will include details about you, your finances and your future mortgage.
With ten different sections to fill out, these forms can often appear complicated and intimidating on first glance. However, a loan officer will almost always help you fill out your application, either over the phone or in person. Make sure you are familiar with the loan application before your conversation so you're ready to answer questions about your finances when working with the loan officer to fill it out.
Each section of the 1003 form is explained below to help you better understand what goes into a mortgage loan application. To get the most out of this information, open a copy of the current Uniform Residential Loan Application so you can follow along.
Section I: Type of Mortgage and Terms of Loan
This first section will ask borrowers to describe the loan program and amount for which they want to apply. The information in this section should match what you discussed with your loan officer and you will probably need their help to make sure you complete it correctly. If you haven’t found a property yet, the amount fields should show the maximum amount you want to borrow.
Section II: Property Information and Purpose of Loan
This section can be confusing due to the fact that most people have not even started looking for a new home when they fill out their mortgage loan applications. As a result, this section will often be left "to be determined."
If you have already found your dream home, you'll include the address and year it was built. You can find the year built by searching for the property on PennyMac’s Home Value Estimator and looking under the Property Details. You will need to indicate who will own the property and hold the title, as well as the source of your down payment, such as savings, cash or help from a first-time homebuyer program.
Section III: Borrower Information
The third section is quick and easy. All you need to fill in is your name, date of birth, address, telephone number, Social Security number and marital status. If you plan on co-signing this loan with anyone else, make sure to record their personal information too. If you've lived at your current address for less than two years, you'll need to provide your former addresses from the past seven years.
Section IV: Employment Information
Here, you will be required to provide proof of employment. This means submitting recent paycheck stubs and W-2 income tax forms from the last two years. This is necessary because lenders want to be able to verify your source of income in order to be certain you can make your mortgage payments and afford the other costs associated with maintaining your home.
If you haven't been at your current job for at least two years, you will need information on your past job and your loan officer will have you sign a Verification of Employment (VOE), which will be sent to your current and former employers to confirm your employment and earnings.
Section V: Monthly Income and Combined Housing Expense
In this section, you will need to detail all forms of income. You'll use your gross income, which is what you make before taxes and deductions. Make sure to include information regarding bonuses, commissions, freelance or 1099 work, child support, rental property payments, and other forms of income. In addition, you will be expected to enter your current rental or mortgage payment information under the "combined monthly housing expense" category.
As part of this section of your mortgage loan application, most lenders will require you to sign IRS Form 4506-T, which allows them to request a transcript of your tax returns.
Section VI: Assets and Liabilities
This section details your current financial health, or net worth. The two factors that need to be considered are how much you own (assets) and how much you owe (liabilities).
In order to paint a complete picture of your financial health, you will have to provide information regarding your assets, such as:
- Checking and savings account balances
- Retirement accounts
- Other property you may own
Next, you will be responsible for listing information about your liabilities. This includes any monthly debt payments resulting from:
- Credit cards
- Auto loans
- Student loans
- Student loans
- Child support or alimony
Section VII: Details of the Transaction
This section will list all of the important information associated with your new mortgage loan. It will detail the purchase price of your home, closing costs and the total expense of your mortgage loan (which will take into consideration principal, interest, and fees). At this point, many of these items are estimates, as they won't be finalized until loan closing. Your lender will likely help complete this section.
The most important thing you need to remember about this section is that you should double-check all costs. Make sure the details of the transaction agree with your current understanding of the mortgage and its terms.
In this section, you will be asked to answer questions about any legal problems or other issues (past or present) that may affect your financial standing. For example, have you ever declared bankruptcy, gone into foreclosure or filed a lawsuit? This information, in addition to your credit report, will help your lender better assess your history and ability to successfully pay off a mortgage. This section will also ask if you're a U.S. citizen or a permanent resident alien. You can still obtain a mortgage if you are not a U.S. citizen as long as you have documentation showing legal residence in the United States.
Section IX: Acknowledgment and Agreement
You've completed the majority of the application and now all that's left to do is sign. By adding your signature, you're agreeing that the information you have provided is true and accurate.
Section X: Information for Government Monitoring Purposes
In this section of the application, you will be asked to provide your ethnic origin and race. This information will be used for government statistics. They want to be sure the United States housing finance system works fairly and meets the needs of every racial and ethnic group within the country.
Make Sure Your Mortgage Application Is Accurate
Before you sign your mortgage application, carefully review it to ensure it's complete and accurate. Beware of anyone offering to falsify information to qualify you for a loan. Whether it's intentional or not, an inaccurate application can be considered fraud. The FBI estimates that more than half the mortgage fraud cases they investigate involve fraud on the mortgage application. Check carefully that you or the loan officer has filled out the following information correctly:
- How much income you earn
- Where you work
- How much debt you owe
- Whether you'll live in the house or someone else will (loan terms are different for a house that will be your primary residence versus a rental)
The First Page of A New Chapter In Your Life
Filling out a mortgage loan application may not be exciting in and of itself but it is an important step in the journey toward owning your new home, one of the most important investments of your life. Providing your lender with a complete, accurate application ensures that you will be able to successfully close on the home you want with a loan you can afford. If you are ready to start moving down this life-changing path, contact a PennyMac Loan Officer today.