Mortgage Application Process
At first the process of applying for a mortgage may seem somewhat daunting. The process of applying for a mortgage loan is actually relatively straight forward. The difficulty typically lies in the applicant gathering together the necessary information and documentation to support their mortgage application.
Individuals who are organized and keep good records should have little trouble pulling together the necessary supporting documentation. Individuals who are not organized, or who do not save pay stubs and account statements, may have to spend more time collecting together the necessary documentation.
The process of applying for a mortgage starts with filling out the mortgage application. This may be done in one of several ways:
- The borrower may fill out a traditional paper application received from the lender or downloaded from their web site.
- The borrower may verbally provide the application information to the mortgage lender who will input it into a computer and send the completed application back to the borrower for review and signature.
- The borrower may fill out an application form online.
Information Needed for a Mortgage Application
Regardless of the means by which the application is filled out, the borrower will need to have certain information in order to complete the application. This information includes:
- Information about the property being purchased including purchase amount, down payment amount, address, property tax information, and estimated homeowner's insurance.
- Information about each borrower on the application including name, social security number, address, phone number, marital status, and number and ages of dependents.
- Employment information covering the last two years for each borrower on the application.
- Monthly income information for each borrower on the application.
- Asset information for each borrower including account numbers and balances. The application also asks for automobile information (year and type) as well as estimated value, and the value of other assets (furniture, jewelry etc.).
- Liability information including credit cards, automobile loans, student loans, and any other type of loan. Borrowers will need to provide the name and address of each company to whom they owe money, as well as account numbers.
- Information about any other real estate owned, if any. This would include the type of property; its value; amount of any mortgage liens; gross rental income if any; monthly mortgage payments if any; and insurance, tax, and miscellaneous payments associated with the property.
Along with the mortgage application, the borrower should be prepared to sign a great deal of additional paperwork, which may include all, some, or more than the following, depending on state regulations:
- Request for verification of rent or mortgage (if applicable)
- Request for verification of employment
- Request for verification of deposits
- Good Faith Estimate
- Federal Truth in Lending Disclosure Statement
- Mortgage Loan Origination Agreement
- A servicing disclosure statement
- Borrower's certification and authorization
- Disclosure notices
For the "typical" mortgage application, a great deal of supporting documentation must be provided. This documentation includes (but may not be limited to):
- Copies of the last six months worth of statements for checking and savings accounts
- Statements or other evidence for any other assets (bonds, stocks, or retirement savings such as 401k or 403b programs)
- Recent paycheck stubs
- W-2 income tax withholding forms for the past two years. Self employed individuals may be asked to provide income tax returns for the past two years to verify their income.
- List of all credit card accounts and the approximate monthly payment
- List of account numbers and balances for any outstanding loans (car loans, student loans, etc.)
- The name and address of someone who can verify employment
- Purchase and sales agreement for the new home (not necessary in the case of a refinance)
- Homeowner's association contact information if the property is a condo or part of a homeowner's association
An individual's particular situation may dictate additional documentation requirements. A divorced individual who pays or receives alimony will be asked to provide a copy of the divorce decree documenting the alimony. It is also common during the application and underwriting process for a lender to ask for additional documentation in support of a particular part of the application.
Certain loans may require less or no documentation, may not verify assets, may even not verify employment. Self employed individuals and individuals for whom documenting income may be difficult or too much of a bother may seek out these types of loans to simplify the application process. For these loans, little or no supporting documentation is provided. Borrowers usually pay a higher interest rate for the convenience of low and no documentation loans.
Reasons an Application May Not be Approved
There are many reasons that a loan application may not be improved. These can include:
- An appraisal that comes in lower than the selling price of the house. Such an appraisal can throw off loan-to-value ratios. Lenders will also not typically lend more than a house is worth.
- Inability to verify information provided in the mortgage application.
- A poor credit report.
- Not enough income for the mortgage being requested.
- Too much debt making the loan too risky.
- Inaccuracies in the mortgage application (which may also constitute fraud).
If a borrower's application is turned down, federal law requires the lender to tell them, in writing, the specific reasons for the denial. The borrower should make sure that they understand the reasons given. Understanding the reasons may allow them to find answers or alternatives that will satisfy the lender's lending standards or help to improve their chances with another lender.
Options if a Loan Application is Not Approved
For an individual who has their mortgage application declined, there are many options, which can include:
- Seek out another lender who may be willing to overlook the reasons that caused the first rejection. The borrower will typically pay a higher interest rate for the lender's acceptance of a riskier loan.
- Increase the down payment to improve debt-to-equity ratios and lower the amount of the loan.
- Pay off debt to improve debt ratios.
- Consider other types of loans with lower initial payments allowing the borrower to qualify such as adjustable rate mortgages, graduated payment mortgages, or interest only mortgages.