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Understand the Application Process
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Buying a Home
Steps to Apply for a Mortgage Loan
This section explains the information you will need to complete
a loan application,
the various decisions you will need to make when you apply for a
loan, and the information your lender is required by law to provide
to you at the time of your loan application.
Before completing a mortgage loan application,
most home buyers have made an offer on a house, decided what type
of mortgage they wish to get, and selected a lender with whom they
wish to do business.
Steps
to Take Before You Apply for a Loan
If you’re about to apply for a mortgage, take the following
steps:
Pre-qualification
Lender pre-qualification
provides a good estimate of how large a mortgage you can afford.
While it doesn't obligate the lender to approve your loan, it’s
a way to ensure that you will apply for a mortgage loan within your
price range. If you've met with the lender to pre-qualify for a
loan, you will have a good idea of the maximum mortgage amount you
can afford and will have focused your house search on properties
within your price range.
Ratified Sales
Contract
Most loan applicants go to their loan interview with a ratified
contract of sale on a house in hand. Typically, your real estate
sales professional has presented your offer to the seller of the
property and helped you negotiate any sales contingencies
with the seller (such as making repairs, settling by a certain date,
etc.). A ratified sales contract means both the buyer and the seller
have signed off on the final offer. This final sales contract is
the starting point for the loan application interview. Your ratified
contract will specify the amount of your down
payment, the price you will pay for your house, the type
of mortgage financing you will seek, and your proposed closing
and occupancy dates. When you meet with your loan officer, you will
need to bring the ratified sales contract with you to effectively
communicate the terms specified in the sales contract.
Earnest Money
Deposit
This is a “good-faith” payment you submitted with the
offer to show the seller that you are serious. The earnest money
is deposited in an escrow
account and will be applied to your closing
costs. Sometimes, your lender will want you to bring a receipt
for the earnest money deposit along with your sales contract to
the initial loan application meeting.
Home Inspection
Report
Obtaining a satisfactory home inspection report
should be one of the terms in your sales contract. As part of your
decision to buy a home, you will want the peace of mind that comes
from having hired a professional house inspector who has evaluated
the structural and mechanical conditions of the property. The home
inspection report will identify problems before you purchase a home.
If you put a contingency clause into your purchase agreement stating
that the purchase of your home depends on a satisfactory home inspection
report, then you will be able to cancel the sales contract if serious
problems are identified, or you may be able to get the seller to
agree to pay for needed repairs or renegotiate the terms of the
purchase.
Information
Your Lender Needs at Application
Typically, you will complete the Uniform Residential Loan Application
when you meet with your lender. This standard residential mortgage
loan application is a four-page document that asks in-depth questions
about you, your income, your assets
and liabilities,
your credit, and asks for a description of the property you wish
to buy.
In some cases, the lender may ask you to fill
out your loan application before your interview. You will then bring
your completed application form to the interview. Or, you can mail
or fax the application to your lender prior to your appointment.
Some lenders may even let you fill out your application over the
telephone with a loan officer. By receiving your completed application before
your meeting, your lender will be better prepared to advise you.
The Mortgage Loan
Interview Application Checklist covers most of the types of information you and
any co-borrower will need to supply. Some lenders have slightly
different information requirements, so ask your lender what to bring
to your initial loan interview.
It may take a bit of time to gather all the required
information. However, knowing what to bring will result in fewer
delays in the processing of your loan.
Decisions
You Make at Application
By the time you go to your loan interview, you may have already
determined the type of mortgage you want and the mortgage amount.
Other important information may need to be determined at the time
of your loan application.
The lender will need key information about the following:
Type of Mortgage
Your loan application asks you to specify the type of mortgage you
want. Your lender will most likely offer you a variety of fixed-rate
or adjustable-rate
mortgages with various repayment terms. There are also balloon mortgages,
FHASM
and VASM
loans, and many others.
It’s advantageous to learn about the various types of mortgages
available to you before you apply for your loan. In fact, it makes
a lot of sense to see what types of mortgage loans are available
even before you start the house-hunting process. The type of mortgage
you choose will directly affect how much house you can afford --
and the amount of your monthly mortgage payments.
If you bring a ratified sales contract to your
loan application interview, it may specify the type of financing
you want. Your contract to buy the house may depend on your ability
to secure or receive a commitment for the type of loan you specify.
If you are coming to your loan interview without a specified type
of loan in mind, be sure you've done your research beforehand to
know which type of financing is best suited to your lifestyle and
budget.
Mortgage Amount
This is the amount of money you will borrow. Your requested mortgage
amount will be based on the purchase price of your new home and
the amount of money you will be putting toward a down
payment. Before actually applying for a loan, many borrowers
find out how much they can afford by getting pre-qualified
by a mortgage lender.
However, if you have been pre-qualified, remember
that your pre-qualification letter from a lender is only a ballpark
range of your buying power. It doesn't obligate the lender to approve
your loan for that full amount. The lender can approve you for the
amount requested, or a lesser amount, or nothing at all, depending
on other factors such as your credit and the appraised value of
the property. If your loan application reveals you as creditworthy,
it is likely that your pre-qualification amount will be close to
the actual amount of mortgage funds a lender will be willing to
loan you.
Down Payment
Most lenders expect home buyers to have enough money available
to make a down payment of at least 5 percent of the value of the
home. If you can afford to put more money toward a down payment,
it will reduce the amount of your monthly mortgage payments.
The lender will want to know how much money you
plan to put down and the source of those funds. Sources you may
draw upon include savings, stocks and bonds, Individual Retirement Accounts (IRAs),
pension funds, real estate holdings, life insurance policies, mutual
funds, and employee savings plans. You may also rely on a
gift of money given to you by a parent or another relative that
need not be repaid. If you use gift money for a down payment, you
will need to present a letter to your lender that states the amount
of the gift, is signed by the donor(s), and is usually notarized
by a third party.
Settlement Date
In your sales contract, you specify a time frame in which
you wish to close on your new home (usually 30, 45, or 60 days from
the time you have a ratified sales contract). If you have a limited
time frame, ask your lender about any type of express services that
may allow for less documentation and alternative means to verify
information you've provided on your application.
You will need to tell your loan officer the approximate date you
would like to close your loan, so that your loan processing will
coincide with this date.
Lock-in
Interest Rate
The mortgage interest rates quoted to you the day you apply for
your mortgage may stay the same, decrease, or increase when you
actually close on your home. That’s why many mortgage lenders
offer loan applicants a rate lock-in.
This lock-in can guarantee you a specified interest rate, provided
the loan is closed within a set period of time. Ask the lender if
the rate can be locked in at the time of application or only at
loan approval, how long the lock-in remains in effect, whether there
is a charge for locking in the rate, and if you can also lock in
points. You will then
need to let the lender know if you want to accept the interest rate
available on the day of your loan application or let the rate float
until you go to closing. If your lock-in period expires before you
go to closing, your lender is not obligated to give you the same
interest rate you had locked in earlier. Therefore it is important
to lock in for a period that will cover the time until your expected
closing date.
Application
Costs You Pay
In addition to the information described earlier, you should also
bring your checkbook to the interview. Although costs and terms
vary among lenders, most lenders require you to pay an application
fee, a credit report
fee, and a separate appraisal
fee at the time of your loan application.
Application
Fee
The application fee covers the lender’s cost to process the
information on your loan. Often , the fee includes the appraisal
-- which is the cost the lender will pay a professional appraiser
to estimate the value of the property you plan to purchase.
Appraisal Fee
An appraiser is a person who is qualified by education, training,
and experience to estimate the value of real
and personal property.
Appraisers usually charge one fee for a single-family home and slightly
higher fees for a two-family, three-family, or four-family home.
Credit Report
Fee
The credit report fee covers the lender’s cost of ordering
your credit report from a credit reporting agency. This report will
verify information that you provide on your application and will
provide additional information from the credit agency’s own
files and from public record. When a credit report is received,
your lender will check it against your application and look for
any discrepancies. You may be asked to explain information in your
credit report. Check
with you loan officer for a complete list of estimated fees.
If
You Change Your Mind
If you change your mind about a property, check with your lender
to see if there are any circumstances under which you would be entitled
to a refund of your application or credit
report fee. In some cases, you can only get a refund of
your application fee if your lender does not approve or deny your
application in the time agreed upon (usually 30 days from the date
of your completed application).
Application
Legal Requirements
Legally, your lender is required to provide you with several types
of documents and information in conjunction with your application
for a mortgage loan. This information includes the following:
Annual
Percentage Rate
Also known as the APR,
this percentage figure includes interest plus certain closing
costs and any points
and other finance charges. It factors these upfront costs over the
term of the loan. The APR must be disclosed to you according to
federal Truth-in-Lending laws within three business days of when
you apply for a loan, or prior to or at closing for a refinance.
Disclosure
about ARMs
Federal law requires your lender to give you information either
when you receive an application form for an ARM or pay a nonrefundable
fee -- whichever comes first. Your lender should provide you with
a written summary of the important terms and costs of the loan,
the past performance of the index
which the interest rate will be tied, and a copy of the booklet
Consumer Handbook on Adjustable-Rate Mortgages.
Good-Faith
Estimate
Within three days after you have submitted your application for
a home loan, the lender is required by federal law to provide you
with an itemized estimate of the costs to close (or settle) the
loan. This report is referred to as a “good-faith estimate.”
It is a ballpark estimate of how much money you will need to pay
at the closing table along with the seller's costs. Costs can and
will vary from the actual amounts indicated, so be sure to take
this for what it is -- an estimate.
Guide
to Settlement Costs
The lender must also give you a copy of the government publication
Settlement Costs: A HUD Guide. This publication describes
the settlement process and nature of its charges, provides information
about your rights, and includes an item-by-item explanation of settlement
services and costs. The lender has three business days after your
written application is taken to give this guide to you.
Authorization
Forms
You may be asked to sign several authorization forms that will allow
your lender to verify the information on your application. These
include the authorization of credit investigation and authorization
to verify your employment, past rental or mortgage payment history,
and bank deposits.
When compiling a credit profile of you, your
lender must certify that the credit
report will only be used for the purpose of qualifying you
for a mortgage loan. As part of the credit evaluation process, your
lender cannot seek any subjective information from your neighbors
or coworkers concerning your character, reputation, or other personal
aspects unless you receive notice. These limitations are set by
the Fair
Credit Reporting Act.
Under the Equal
Credit Opportunity Act, your lender cannot discriminate
based on race, color, national origin, sex, marital status, age,
religion, and the fact that all or part of your income comes from
a public assistance program, and your exercise of any rights under
the Consumer Credit Protection Act. Your lender cannot ask questions
about your future parenting plans, although the lender may ask about
the current number of children you have and their ages.
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