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 youll find applying for your mortgage
isnt so bad after all. Its still time-consuming,
but theres no reason for it to be difficult.
This material will help you know whats
coming when you apply for the mortgage that could pay for
the house of your dreams!
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 dont 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
youre 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
youll be asked to provide, and have it all assembled and
ready to use before you start to fill out the application, youll
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 youll find it useful to review this
material with your lender. You may not need to get all of it together,
Purchase contract and property information.
Since the home youre 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
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
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.
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 youve lived at your current address for less
than two years, be ready to provide addresses for the past seven
Youll 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!)Thats why you need to provide so much
detailed information about your employment and other sources of
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 reasonillness, layoffs
or other factorsthere 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.
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,
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
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, youll 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
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 youre 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 persons
relation to you, the amount of the gift and that no repayment
Just as your lender needs to know what you have
(assets), he or she also has to know what you oweyour liabilitiesand
about your credit history. You should be prepared with the following
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 youre 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
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 whats
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 bureausTRW, Equifax, and Trans
Unionlisted in the yellow pages.
If youve had credit problems, dont
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 youre doing it yourself), youll be
asked to certify the information with your signature. You also
promise to notify the lender of any important changes in your
Finally, you agree that your lender can verify
the information youve provided and submit your account history
to credit reporting agencies.
In addition, youll 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 dont have to provide it; its 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.