Applying For Your Mortgage

The MBA created this Section to make the process of getting your mortgage a little easier and a lot less confusing. Here, we will take you step-by-step through the process of applying for your mortgage loan, so you’ll know what to expect and what your options are.

But while we provide this as a helpful guide, there is no substitute for a direct relationship with a reputable mortgage lender. The fact is a mortgage is a complicated transaction, and every state has different laws and regulations. Your lender knows these special requirements inside out. So turn to your lender for help if there’s something you don’t understand. He or she will be happy to guide you through the process.

Introduction

Applying For Your Mortgage

For many home buyers, the process of applying for their mortgage is one of the most stressful financial transactions they ever make. It seems your lender wants to know everything about you and your finances. And you worry something will not be "up to par."

But if you know what to expect and what your lender is looking for you’ll find applying for your mortgage isn’t so bad after all. It’s still time-consuming, but there’s no reason for it to be difficult.

This material will help you know what’s coming when you apply for the mortgage that could pay for the house of your dreams!

Table of Contents

Section 1: What to expect when you apply for your mortgage

Section 2: Your application checklist

Section 3: What happens after you’ve applied

Section 4: What you can do after you’ve applied

Section 5: Getting the word and what’s next

Section 6: Glossary of terms

Section 1: What to expect

The Application: There Is An Easy(er) Way.
What to expect and what you lender needs to know when you apply for your mortgage.

You don’t really have to tell your mortgage lender everything about your whole life when you apply for a mortgage but to some people it seems that way.

In fact, 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 plan? Plan...

The best way to make the application process easier and faster is to be prepared for it. If you know the kind of information you’ll be asked to provide, and have it all assembled and ready to use before you start to fill out the application, you’ll find the process can go fairly quickly.

Next, we'll discuss the information your lender will most likely need to know. But each lender has different procedures and requirements, so you’ll find it useful to review this material with your lender. You may not need to get all of it together, after all!

Purchase contract and property information. 

Since the home you’re buying serves as the collateral for the loan, your lender will need to evaluate the home through an independent appraisal. In addition, when you make your application you need to provide:

• A complete copy of the sales contract. It must include 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 the like.
• Mailing address and description of the property. The mailing address must be complete; "description" means the type of property (for example, single family home, town house, condominium, etc.).
• Contact information for access to the property. The name, address and telephone number of the real estate agent and/or seller of the property who can let the appraiser into the home.
• Plans and specifications (for new construction only). A complete set of plans and architectural specifications is required if the home is to be built or is still under construction.

Personal information

Your lender will need a detailed and accurate picture of your financial situation, so you and your spouse (or other co-borrower(s)) must provide a good deal of personal information to your lender.

This 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 addresses for the past seven years.)

You’ll also be asked for your current housing expenses, including rent or mortgage payments, real estate taxes and homeowners insurance, and the name and address of your landlord(s) or mortgage lender(s) for the past two years.

Employment history and sources of income

Understandably, your lender wants to make sure you can make the regular monthly payments for your mortgage, along with the other costs associated with owning a home. (You should want to be sure, too!)That’s why you need to provide so much detailed information about your employment and other sources of income, including:

• At least two years of employment history. This information should include your employer's name, address and 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 and a form that will be sent to your employer (and previous employers if you've held your current job for less than two year) to verify the information you provide.

• 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.

• Written explanation (if there are gaps in your employment). If for any reason—illness, layoffs or other factors—there are gaps in your employment record over the past two years, be prepared to provide your lender with a written explanation.

• Records of dividends and interest received from any investments. The form 1099s provided annually for your tax records are ideal.

• 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.

Assets

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:

• All 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.

• Bank statements. Plan on providing statements for at least the last two months.

• Current values of stocks, bonds, CDs and other investments, including mutual funds as well (available from newspaper stock tables).

• 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).

• 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).

• Automobile information, including the make, model and year of any vehicles you own.

• 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.

• 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 (even gifts from relatives). If you’re providing less than 5 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.

Liabilities (debts)

Just as your lender needs to know what you have (assets), he or she also has to know what you owe—your liabilities—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, and private store or company credit cards. Debts also include any alimony, child support or maintenance payments you’re required to make.

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—listed in the yellow pages.

• If you’ve had credit problems, don’t 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.

COMPLETING YOUR APPLICATION

Once you and your lender have completed your application (or just you, if you’re doing it yourself), you’ll be asked to certify the information with your signature. You 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 and 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; it’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.

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Section 2: Application Checklist

Your Application Checklist

The information you might need to provide in a convenient checklist.

Please note that all requested information must be provided by you and your spouse (or other co-borrower(s)).

• Purchase contract and property information
  • Complete copy of the sales contract
  • Mailing address and property description
  • Contact information for access to the property
  • Plans and specifications (new construction only)


• Personal information
  • Social security number
  • Age
  • Years of schooling
  • Marital status
  • Number and age of dependents
  • Current address and telephone number
  • Addresses for past seven years (if more than one)
  • Current housing expenses (rent, mortgage, insurance, taxes)
  • 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
  • Complete information on all bank and money market accounts
  • Two months of bank statements
  • Current values of stocks, bonds, mutual funds and other investments
  • Vested interest in retirement funds
  • Value of life insurance
  • Information on any cars you own
  • Information on any real estate you own
  • Value of any significant personal property you own


• Liabilities and debts
  • Itemized list of all current debts: loans and credit card and other bills
  • Written explanation of any past credit problems
  • Full details of bankruptcy during the last 7 years, if applicable


• Fees
  • Credit report and appraisal fees (usually $500 or less)

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Section 3: What happens next?

What Happens After You’ve Applied
What your lender does after you’ve completed the application.

For many home buyers, the first thing that happens once the application is completed is a celebration! After all, completing your application is the biggest single step you’ll take toward getting the mortgage that will put you in your new home and that’s certainly an occasion worth celebrating.

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.

Verification

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, 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.

Naturally, the time it takes to get 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.

More importantly, if the information your lender receives during the verification process does not agree with the information you provided, the 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.

The Underwriter

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’s decision is based on mathematical models that incorporate all the data that’s been provided on the home you’re buying, your income and employment, your assets and liabilities, and your history of credit. Each mortgage company develops its own approval standards, so that one might approve you for a mortgage that another would not.

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Section 4: What you can do

How Long And How To Make It Easier

How long you can expect to wait...
what you can expect to receive...
and how to make the waiting easier.

The time between making your application and receiving the final word on your loan is nerve-wracking for every home buyer even if your lender indicated your application will probably be approved.

Just how long will it take? Processing times vary, and can be affected by things beyond your lender’s control waiting for verifications to be returned and the like.

Generally, though, you should expect the approval process to take about 30 days. Your lender should be able to give you a fairly accurate idea when you complete your application.

What you’ll get

Shortly after you complete your application—within three business days—you should receive two separate pieces of information from your lender (they may be given to you during your application interview).

• 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.
• 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.

How to make the waiting easier? The single most important thing to remember while you’re waiting for your loan to be approved is this:

Lenders want to approve loans.

After all, that’s what they’re in business to do. That’s how they make their living.

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.

But even if you have been completely accurate, you should be prepared for your lender to ask for additional information about you or the home you’re buying. A request for more information isn’t necessarily a "bad omen." Just provide the information that’s been requested as quickly and completely as you can.

In general, it’s a good idea to keep the lines of communication open. If additional questions do arise, it’s important for you to be available to provide the information as quickly and completely as possible.

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.

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.

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Section 5: Getting the News/What’s Next

Getting The Word And What’s Next
How you’ll learn whether your loan is approved and what happens next.

If your loan is approved, you’ll generally be notified by 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.

In some circumstances, your commitment letter may also include additional information:

• 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 some 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 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 the reason or reasons for the decision. If your loan request has been denied, make sure you understand why. Your lender can help explain what steps you can take to correct the problem, so you can reapply in the future.

The next steps...

Once you’ve received your loan commitment, the next step is to close your loan and buy your home.

Congratulations and good luck...you’re getting much closer to your new home!

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Section 6: Glossary

Glossary
Quick definitions of some of the terms used in this booklet that may be new to you.

Annual Percentage Rate (APR)—a stated interest rate that reflects all the financing costs of a mortgage. The APR includes points, origination fees and other finance charges in addition to the interest on the mortgage, and includes them all in a yearly interest rate. As a result, the APR is usually higher than the interest rate alone. It also provides a benchmark for comparing different types of mortgages based on the annual cost for each loan.

Appraisal—an estimate of the value of a property, made by a qualified professional called an appraiser.

Closing—the meeting between the buyer, seller and lender (or their agents) where the property and funds legally change hands. Also called settlement.

Closing Costs—the costs and fees associated with the official change in ownership of the property and with obtaining your mortgage that are assessed at the closing or settlement. Closing costs include required certifications, insurance, taxes and other fees, and typically total between 3 and 6 percent of the mortgage amount.

Credit Report—a report that documents a borrower’s credit history and current status. Borrowers can examine their own credit reports, although most credit reporting companies charge a fee to provide a report.

Escrow—a special account set up by the lender in which money is held to pay for taxes and insurance. "Escrow" can also refer to a third party who carries out the instructions of both the buyer and seller to handle the paperwork at the settlement.

Interest—the sum paid for borrowing money, which pays the lender’s costs of doing business.

Loan Origination Fee—the fee charged by a lender to prepare all the documents associated with your mortgage.

Mortgage Insurance—an insurance policy the borrower buys to protect the lender from non-payment of the loan. Private mortgage insurance policies are usually required if you make a down payment that is below 20% of the appraised value of the home.

Principal—the amount of debt, not including interest, left on a loan; also the face amount of the mortgage.

Title Insurance—an insurance policy which insures you against errors in the title search, essentially guaranteeing your and your lender’s financial interest in the property.

Underwriting—the process of deciding whether to make a loan based on credit, employment, assets and other factors.