Borrowers Guide To Mortgage Application

Borrowers Guide To Mortgage Application

A borrower's guide to the mortgage application

Here is the missing manual for the complex form you fill out when you apply for a home loan.

By Marcie Geffner of

© Alex Stojanov/Alamy
A mortgage application's purpose is to help the lender decide whether to lend money to the borrower. But the industry-standard Uniform Residential Loan Application, also known as Fannie Mae Form No. 1003, is more complicated than that straightforward intent might suggest. (Bing: Download a blank mortgage application)This section-by-section summary can help you figure it out.Section No. 1: Type of mortgage and terms of loan. This section, which describes the loan program for which the borrower wants to apply, is "generally not something the consumer is going to be able to complete," says Greg Cook, a loan consultant and first-time-homebuyer specialist at Guild Mortgage Co. in Temecula, Calif. Instead, the loan officer will fill in the details.
Section No. 2: Property information and loan purpose. Most mortgage applicants haven't identified the property they want to purchase. So parts of this section will be marked "to be determined," Cook says. Borrowers must indicate who will own the property and how the title will be held. They'll also have to disclose the source of their down payment — e.g., cash, gift or a first-time-homebuyer program.Section No. 3: Borrower information. This section asks for the borrower's and co-borrower's full names, birth dates, addresses, telephone numbers, Social Security numbers, marital status and other details. All of it, Cook says, should be a no-brainer for borrowers.Section No. 4: Employment information. This section lets the lender contact the borrower's employer or employers to verify the length and terms of employment. A two-year job history typically is a minimum requirement, says Jay Dacey, a mortgage broker at Metropolitan Financial Mortgage Co. in Minneapolis. That means specificity is crucial. "If you get lazy, and two years was really one year and 10 months, then all of a sudden the whole loan could be messed up," he says.
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Section No. 5: Monthly income and combined housing-expense information. The left side of this section is used to determine if the borrower can repay the mortgage. Cook says this information often "requires some tweaking" because lenders calculate income differently than most borrowers perceive it.Most lenders require you to sign Internal Revenue Service Form 4506-T, which authorizes the lender to request a transcript of your tax returns.Self-employed borrowers should know that early in the year, the previous year's earnings can't be used for loan qualification until the lender obtains verification of a current tax return from the IRS, Dacey says. It takes four to six weeks for the IRS to process and verify a Form 4506-T.The right side of this section discloses the so-called "payment shock" that borrowers will experience they transition to new, often higher monthly housing costs.Read:  Are your home-loan chances better at a small bank?"If someone has been living with mom and dad, paying zero rent, and is taking on a $1,500 payment and hasn't been able to save any money, that's a signal to the lender to look closer," Cook says. "If they're paying $1,200 in rent, and the new house payment is $1,400, and they have a down payment and good credit scores, the lender is not so worried."Section No. 6: Assets and liabilities. Assets refer primarily to savings, checking and retirement accounts, as well as other investments."If you have demonstrated an ability to save, and it's your own money in the deal, it makes lenders feel better," Cook says.Retirement savings typically aren't counted at 100%, Dacey says, because of investment volatility and early withdrawal penalties and taxes. Generally, retirement savings are marked down to 60% or less, he says.Liabilities can be listed from the borrower's credit report, Cook says. Alimony and child-support payments also must be disclosed, so the lender can evaluate the borrower's financial obligations.The separate Schedule of Real Estate Owned shows the lender a borrower's other properties, if any. This section is especially important for move-up buyers who intend to keep their current home as a rental.Section No. 7: Details of transaction. Cook says borrowers will never fill out this section because the details depend on the loan-origination terms. Still, read it carefully.Section No. 8: Declarations. This section is the last chance for borrowers to "own up," to any financial hiccups they've experienced, Cook says. These include a bankruptcy, foreclosure or lawsuit."Tell your lender everything," he says. "If it can be fixed, we can fix it upfront. If it can't be fixed, there's no sense getting into escrow on a house you're never going to close on."

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Dated: July 8th 2013
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