In our previous post, we showed you how to familiarize yourself with the world of real estate and assess your current financial health. Now it's time to explore the next step in the home loan process – the application.
Also 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 capture details about you, your finances and your future mortgage.
A loan officer will almost always help you fill out your application, over the phone or in person. You should, however, be familiar with the loan application so you're ready to answer questions about your finances when working with the loan officer to fill it out. With ten different sections to fill out, these forms can often appear complicated and intimidating upon first glance. So, we're going to go through a quick explanation of each section, to help you better understand what exactly goes into a mortgage loan application. Here's a copy of the current Uniform Residential Loan Application so you can follow along.
Mortgage Loan Applications – Lifting the Curtain
Section I: Type of Mortgage and Terms of Loan
This 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. The amount fields should show the maximum amount you want to borrow, if you haven't found a property yet.
Section II: Property Information and Purpose of Loan
In truth, most people have not even started looking for a new home when they first begin filling out their mortgage loan applications. So, this section will often be left "to be determined." If you've found a property, you'll include the address and year it was built. You can find the year built by searching for the property on Zillow, then clicking on the property's detail.
But if you have already found your dream home, you will need to indicate who will own the property and hold the title. You will also have to disclose the source of your down payment, such as savings, cash or first-time homebuyer program.
Section III: Borrower Information
All you have to fill out in this section is: your name; date of birth; address; telephone number; Social Security number; and marital status. And, 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 paycheck stubs and W-2 income tax forms from the last two years. Why is this necessary? Well, lenders want to be able to verify your source of income. They want to be certain that you can make your mortgage payments and can afford the other associated costs with maintaining your home.
If you haven't been at your current job for at least two years, 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 your bonuses, commissions and other forms of salary. In addition, you will also be expected to enter your current rental or mortgage payment information under the "combined monthly housing expense" category.
Section VI: Assets and Liabilities
This section details your true, current financial health – how much you own (assets) versus how much you owe (liabilities).
As a result, you will have to provide information regarding your assets, such as checking and savings account balances, retirement accounts, investments, and even your automobiles. And, you will be responsible for listing information about your liabilities. This includes any monthly debt payments resulting from credit cards, auto loans, student loans, child support, or alimony. And, don't forget to mention any property that you currently own, too. You'll need account numbers, balances, and creditor's addresses for all these items.
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.
Just remember to double check all costs. Make sure the details of the transaction agree with your current understanding of the mortgage and its terms.
Section VIII: Declarations
In this section, you will be asked to answer questions about any legal problems or other indiscretions (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're not a U.S. citizen, but have documentation showing legal residence in the United States.
Section IX: Acknowledgment and Agreement
You've completed the majority of the application – all that's left to do 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 America's housing finance system works fairly and meets the needs of each racial and ethnic group within the country.
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 make
- Where you work
- How much debt you already owe – Did you include any other existing mortgages, car loans or credit card debts?
- 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 one you plan to rent out.
Don't sign any documents that have incorrect dates or blank fields. If someone offers to "fix it later" or "fill it in later," insist it be corrected before you proceed.
Next Article: Explaining the Loan Process: Part 3 – Processing