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Mortgage Application: A Borrower's Guide

August 20th, 2020 11:20 AM by Jackie A. Graves


 

On the expense side, you’ll be asked to provide your monthly housing costs, such as rent or your first mortgage, HOA fees, or mortgage insurance.

Assets and liabilities

In this section, you’ll list assets including savings, checking, and retirement accounts, and any properties you may own. Under liabilities, you’ll include all debts such as car loans, credit cards, other mortgages, and any alimony or child support you’re obligated to pay.

It’s best to be upfront in this section, even about seemingly small debts.

“Borrowers may think a small loan or car payment nearly paid off is not significant to disclose, and then when their credit is pulled it pops up,” Baisden says.

Details of transaction

This section contains more information about the mortgage, such as prepaid costs, closing costs, mortgage insurance, and discount points. You’ll likely rely on your loan officer to fill out these details.

Declarations

Here, you’ll confirm whether your financial history includes outstanding judgments or bankruptcy, foreclosure, or lawsuits. If you or your co-borrower have these issues, discuss them right away with your real estate agent and loan officer so they’ll know how best to guide you.



Acknowledgement and agreement

Like any application, this section is so the borrower can confirm that the information they’ve included is accurate, and acknowledge that the lender and other parties have permission to verify the information (or verify it again, if needed, in the course of doing business with the borrower). Here, you and any co-borrowers will sign and date the application.

Information for government monitoring purposes

In the final section, you’ll be asked if you’d like to share the information on the application with the government so that they can ensure the lender is compliant with federal laws pertaining to discrimination. If you do want to share this information, you and any co-borrowers can indicate your ethnicity, race and sex in this section. If you don’t, you’ll simply check off “I do not wish to furnish this information.”

What you need to apply for a mortgage

Your lender will ask you numerous questions in the application, so you’ll need to know things like contact information, specific dates, numbers and more. Here are the main documents and information you’ll need to answer them:

  • Employment information (name, address and phone of all employers in the past two years)
  • Income information (W-2s from the past two years, and pay stubs from at least the past month)
  • Additional income information from the past two years (e.g., dividends or interest, pension, Social Security)
  • Bank statements from the past three months (e.g., checking and savings, CDs, money market accounts, 401k or other retirement accounts)
  • Form 4506-T or 4506T-EZ from your loan officer authorizing the lender to access your tax return
  • Signed purchase contract


If you’re self-employed, own a business or get paid through commissions, you’ll likely also need to provide additional information, as well, such as:

  • Federal tax returns from the past two years, including business tax returns (such as Form 1120, 1120S or Schedule K-1/1065)
  • Business records from the past several years (e.g., P&L statements)

Note that your lender may request more documents during the underwriting process. This is common and expected — sometimes, a lender just needs more information so that they can clearly understand your risk level and determine your ability to repay.

Overall, preparation is key when applying for a mortgage. In addition to having all of your paperwork in order, there are a few things you can do to help ensure a successful application:

  • Document the source(s) of the down payment. If a family member is helping you make a down payment, for example, have him or her sign a gift letter confirming where the funds came from and what they will be used for.
  • Keep your job the same. If you can help it, avoid quitting your job or starting a new one while your application is being processed. The lender can deny your loan if your employment situation changes.
  • Refrain from large purchases. Big-ticket charges can be a red flag to lenders, who may become concerned about your capacity to afford the mortgage. Ditto to opening a new line of credit or missing a debt payment, which can impact your credit history.

“If you’re preapproved for a $500,000 mortgage for a home that you’re purchasing for $600,000, you’re close to the maximum affordability,” explains Melony Swasey, a real estate agent with Unlimited Sotheby’s International Realty in Jamaica Plain, Massachusetts. “Then suddenly you buy a car with a car note — that could affect whether you get approved.”

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