Formal Loan Application

Congratulations on reaching this stage in your home buying journey! You've accomplished so much already, from finding a Buyer Agent and signing the Buyer Agency Agreement, to getting pre-approved by a lender and finding your dream house. Now, it's time to make a formal loan application. This is different from pre-approval because it involves a thorough review of your finances, the property's value, and your credit by an underwriter. Once the underwriter gives their approval, you will receive a loan commitment, indicating that the bank commits to providing the funds needed for your home purchase. During this process, you'll also want to lock in your interest rate to avoid any potential increases.

APPLYING FOR THE MORTGAGE

Making a formal loan application is the first step in getting your mortgage approved.  You previously did some of the hard work already - when you got your pre approval with the lender, you already gave them your name, your income, your social security number and how much you had to put down on the house.

Now the lender will want to verify all this information.  So there will be documents that the lender will want to see.  The lender can give you a complete list, but here is generally what most lenders will want to see:

• First, they are going to want to verify your employment.  The lender will ask you to supply two years of W-2's to verify what your income is.  The lender will want to see pay stubs for the last month.  The lender will also send to your employer an employment verification form asking them to verify how long you have worked there and if you will continue to work there.  They will also want to verify your income.  The lender will want to see a 2 year work history, so if in the last 2 years, you have changed jobs, the lender will want to know that as well.  And if you are self employed, the lender may want to see some additional information, such as a Profit and Loss statement.
• Second, they are going to want to verify any additional income you may have.  For instance, if you received Social Security income in addition to a regular pay check, they will want to see the benefits statement.  The lender will also want to see any assets you may have, any savings and investment accounts you may have.  If you receive alimony and child support they will also want to see the documentation on this as well.
• Third, they will want to see your savings and checking accounts.  And, if you have made any large deposits recently, they will want an explanation as to where those funds came from.
• Fourth, you will have to sign the IRS 4506-T or 4506-T EZ form.  This will give the lender permission for them to request from the IRS the transcripts of your last 2 or 3 years tax returns to verify that the tax returns you submitted are accurate.
• Finally, the lender will want to see a copy of the fully ratified purchase agreement.  This lets them know what price you are paying for the house, if the seller is paying any of your closing costs, what type of loan you will be getting, the down payment you will be putting down, how much the earnest money deposit is and your closing date.

THE MORTGAGE LOAN APPLICATION ITSELF

The mortgage loan application itself has several sections in it that you will need to fill out.

• The type of mortgage you are applying for - is it conventional or FHA or VA or VHDA?  How much are you borrowing?  Is it a fixed loan or an adjustable loan?  Is the term for 15 years, 20 years, 30 years or something different?  The loan officer will definitely help you fill in this information!
• The property information - most of this information will be on your ratified contract, but they may want to know how you want the property to be titled (this is the document that details the ownership rights of the property you are buying).  Again, your loan officer will be the person helping you with this information!
• Borrower and Co-Borrower information - will include social security numbers, current address, residence history and some additional information!  Again, another area where your loan officer will help you if you have questions!
• Employment information - all borrowers need to supply their current employers (name, address, person to contact, phone number, email address).  If anyone has been on their job less than 2 years, then the lender will want to have this information on all previous employers!
• Monthly housing information & housing expenses - when detailing your monthly income, you should include any other income you receive, such as overtime, bonuses, shift differentials, commissions, dividends, interest income, etc.  For housing costs, you need to fill in the amount you are currently paying as well as the estimated mortgage payment and HOA dues you will be paying.
• Assets and liabilities - here you will note any assets you have (investments, rental properties, etc) as well as your liabilities (student loans, credit card debts, any other debts you are making repaymnet on).
• Details of the transaction - this will be taken from the contract and will include the purchase price.  The lender will estimate what the closing costs and prepaids will be and what the mortgage insurance premium will be.  This allows them to determine how much cash you may have to bring to the closing table.
• Declarations - here the lender is going to want to know if you have declared bankruptcy or been in foreclosure in the last 7 years.  They will want to know if you have any outstanding judgments against you.  Finally, they will want to know if you are a party to a lawsuit.  If the answer is yes to any of these, you may need to prepare a detailed explanation for the lender.

WHAT HAPPENS NEXT?

After you have filled out the mortgage loan application, you will need to supply the documents to the lender that they say they need.  You will also want to make sure you lock in your interest rate, to make sure you don't have any surprises, especially because interest rates have been so volatile over the past year or so.  The lender will also order an appraisal to be done, to determine if the price you are paying for the house is the fair market value for the house.  During this time, the lender may request additional information.  Please make sure you cooperate with the lender's requests, even if you feel like you have already given them what they wanted before.  The loan officer knows what the underwriters are looking for and they want to make sure that the file they send to them for final review is put together with all the documentation that they know the underwriter will want!  The last thing you want is for an underwriter to send back the file, requesting more documents, as this will delay the final loan commitment!

Your loan officer and Buyer Agent will help you gather the required documents, and once the appraisal is complete, everything will be submitted to the underwriter for review and approval. This whole process typically takes between 30 to 60 days, depending on your loan type and closing date. Don't worry, your loan officer and Buyer Agent will do their best to ensure a smooth experience for you!

If you are thinking of purchasing a home and have questions about the process, please don't hesitate to get in touch!  We can meet for coffee and sit down and talk about the home buying process, even if you aren't ready yet to make that move!