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

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.