It is really a straight forward process. The difficult part of the process is when the applicant has to assemble the required documents that support the application. Applicants who are well organized and have secured the appropriate documentation will find the application process relatively easy.
Here is the process:
The applicant completes the application form. The applicant can fill out the required fields on the paper application form or submit it online at their vendor's website. Alternatively, the applicant can verbally provide the required information to the vendor who will input it in the form and then the applicant would sign it. Additional supporting information are also required as follows:
- The prospective property being purchased sales price, down payment, address of the property, property tax amount and the estimated homeowner’s insurance.
- Borrowers’ information on the applications which includes name, social security number, address, phone number, marital status, and the number of dependents including their ages are also required.
- Applicants’ employment for the past two years.
- Applicants’ monthly income details.
- Assets owned by all applicants which include their account numbers and balances. Automobiles owned with details on year and type, as well as other assets owned. These could be things like jewelry, stocks bond and other equity holdings.
- All liability information like credit card balances outstanding, loans such as automobile loans and student loans, including any other types of loans. Borrowers will need to provide the name and addresses and balances owed to the creditors along with account numbers.
- Real estate owned are also required on this form along with their values, liens on them, any rental income received from these properties and mortgage payments if any, and tax payments, insurance and any other miscellaneous payments associated with the property.
As part of the application process the borrowers may have to sign another set of documents which may include some or all of the following depending on the state where they live.
- Mortgage loan origination agreement
- A servicing disclosure statement
- Request for verification of employment (where applicable)
- A good faith estimate
- Federal Truth in lending disclosure statement
- Request for verification of deposits
- Request for verification of rent or mortgage (as applicable)
- Borrowers certification and authorization
- Disclosure notices
In addition to this documentation, other supplemental information is also required for the mortgage application: They are:
- Last six months of financial statement for checking and savings accounts
- Other financial statements or equivalent information showing the other assets such as stocks, bonds, retirement savings such as 401k or 403b programs.
- Applicants recent paycheck or pay stubs
- The past two years W-2 income tax withholding information. Those self employed may have to verify their income for the past two years by producing their income tax returns.
- Show approximate credit card monthly payments and list the number of card owned.
- Show any outstanding loan balances –student, car and other loans with appropriate account numbers.
- A reference of someone who can verify employment.
- The purchase and sale agreement for the new house, if it is a new purchase.
- Any home owner’s association contact, if the home is part of a condominium association or cooperative.
- Other pertinent information as the lender may require.
Since each situation varies, the lender will inform the applicants of any other pertinent documents which are required. Some types of loans may or may not require all these documents. If an applicant is self employed he/she may chose to take another route that requires less documentation to avoid the bother of having to obtain all these documents. For these types of loans, the borrowers may have to pay higher interest costs.
Some of the reasons for not getting the loan approved are as follows:
- The house being bought appraisal is lower than the selling price of the house
- Verification of the information on the application could not be verified
- Applicant credit rating was poor
- The applicant’s income level is not high enough to support he loan. The lender may think that the risk is too much to bear.
- Fraudulent application information or inaccuracies of information on the application.
The lender is required to inform the borrower in writing if the application is denied and give specific reasons for it. The lender should ensure that the borrowers understand the reason for denial so they can improve their chances in attempting another application in the future knowing these deficiencies and correcting them.
If the application is denied the borrowers have the option to find other lenders who may overlook the reason for denial of the loan. However, the borrowers will have to pay higher rates for increased risks by the lender. A higher loan to value ratio will be required but a large down payment may be required. Borrowers can pay off outstanding debts so as to improve their loan to value ratios and qualify for other types of adjustable rate mortgages and loans in this situation.
This is generally the mortgage application process you will have to undergo when purchasing a home.