Applying for a mortgage loan
After you have
contacted several mortgage lenders, you may see that one mortgage
lender is quoting the lowest interest rates but another mortgage
lender charges less in upfront costs payable at closing.
Perhaps yet
another mortgage lender has the most favorable lock-in policy.
That’s why you
need to select the features that are most important to you.
When you have
decided which mortgage lender offers the kind of mortgage you want
with the best terms for your situation, you’re ready to make an
appointment with the mortgage lender.
Request that a
loan application be faxed emailed or mailed to you and ask what
documentation you should bring with you to the interview.
Loan
interview
It is important to
prepare for the loan interview.
Try to anticipate everything you will need and have all of
the necessary information (including names, addresses with zip
codes, phone numbers, dates of employment, etc.) readily
available.
Use
pre application worksheet 9.
If you and your
co-purchaser will both be signing the mortgage, you should both go
to the loan interview.
Required documentation:
Bringing the
following documents with you to the loan interview will speed up
the loan process:
-
the purchase contract for the house;
-
your bank account numbers, the address of your bank
branch, and your latest bank statement;
-
pay stubs, W-2 forms for the past two years, or other
proof of employment and salary (if you are self-employed,
balance sheets, tax returns for the past two years, and a
year-to-date profit and loss statement);
-
information about debts, including loan and credit card
numbers and names and addresses of your creditors; and
-
evidence of your mortgage or rental payments, such as
canceled checks or money order receipts.
Qualification
If you have not
already been pre-qualified by the mortgage lender, the loan
officer will first want to make sure you qualify for the loan you
are applying for. Get
pre qualified for a mortgage.
Mortgage
Lenders traditionally have required that your monthly
mortgage payment (including taxes, insurance and condominium fee,
if any) not exceed 28 percent of your gross monthly income, and
that your monthly mortgage payment plus existing debt payments not
exceed 36 percent of your gross monthly income.
(These guidelines may be exceeded in certain
circumstances—for example, with excellent credit or a
substantial down payment.)
The loan application
If you have not
already done so, the mortgage lender can help you fill out the
loan application. Or,
you may want to ask a representative from a local nonprofit
housing assistance group to advise you of the best way to complete
your loan application.
This form is
designed to provide the information the mortgage lender needs to evaluate
the risk involved in lending you money.
Mortgage lenders speak of
the “four Cs” of credit—capacity, credit history, capital,
and collateral.
Capacity. Can you repay the debt?
Mortgage lenders ask for employment information: your occupation,
how long you’ve worked, and how much you earn.
They also want to
know your expenses: how many dependents you have, whether you pay
alimony or child support, and the amount of your other expenses.
Credit history. Will
you repay the debt? Mortgage
lenders
look at your credit history: how much you owe, how often you
borrow, whether you pay bills on time, and whether you live within
your means.
Capital. Do you have
enough cash for the down payment and for closing costs? Do you need a gift from a relative?
Will you have a
cushion left after your home purchase, or will you spend your last
penny at settlement?
Collateral. Will the
mortgage lender be fully protected if you fail to repay the loan? Mortgage lenders must be sure the house you are buying is
sufficient to back up your loan.
Some additional considerations.
You will not help yourself by trying to cover up past
credit problems in hopes that the mortgage lender won’t discover them.
It may be a good
idea to ask for help from a nonprofit housing group, especially if
you want to assemble documents to build a nontraditional credit
history.
Once you have
signed the loan application, you may be bound to accept the loan
if it’s offered or to pay the lender’s processing costs if
your application is rejected.
Be sure the application states amounts and terms that are
acceptable to you.
You may be
required to pay a nonrefundable application fee at this time,
which typically covers the cost of the appraisal and credit report
only.
Locking
in the current mortgage rate
If you feel that
mortgage rates may rise during the time the loan is being
processed, the mortgage lender may agree to lock in the current
mortgage rate (and number of points) for a given period.
Find out when the
lock-in takes effect and how long it remains in effect, and get
the lock-in agreement in writing.
A lock-in for a very short time period may be useless; you
want something that will get you to closing without having to be
extended.
Estimates
of closing costs
Within three days
after you have submitted your application for a home loan, the
mortgage
lender is required by law to provide you with an itemized estimate
of the costs to close the loan.
This report is
referred to as a “good-faith estimate”.
The mortgage lender must
also give you a copy of the government publication, A Home
Buyer’s Guide to Settlement Costs.
Speeding
up the approval process
Be sure to respond
promptly to the mortgage lender’s requests for information while
your loan is being processed.
It’s also a good
idea to call the mortgage lender occasionally to check on the
status of your application. You
can then contact your employer or others who need to provide
documents or other information for your loan.
>Next>
The Home Loan Process
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