It all begins when you find THE house and make a sound offer based on your budget and pre-qualification amount. Once the offer is accepted, the mortgage process begins. To help you understand every step, we'll cover information about the loan application and decision points throughout the entire process.
Typically when you apply for a mortgage, you'll be asked to complete a Uniform Residential Loan Application. This standard residential mortgage loan application is a four-page document that asks in-depth questions about you, your income, your assets and liabilities, and your credit as well as a description of the property. Although it can vary slightly depending on the type of loan, lenders usually require the following information and documentation:
In addition to providing your financial history, you'll also need to tell the lender what type of mortgage loan you're interested in. Learn about the types of mortgages available to you before you apply for your loan or even before you start house-hunting. Your mortgage will directly affect how much house you can afford and the amount of your monthly payments.
Again, this is a decision you most likely will have made before the loan application. Your requested mortgage amount will be based on the purchase price of your new home and the amount of money you will be putting toward a down payment. Before actually applying for a loan, many borrowers find out how much they can afford by getting pre-qualified by a mortgage lender.
Some loan programs offer 3% down payments if you meet certain income standards, and the Veterans Administration (VA) and the Rural Housing Service (RHS) offer no-down-payment loans. Usually home buyers are expected to make a down payment of at least 5-10% of the value of the home. However, if you put down less than 20% on a conventional loan, most lenders will require you to carry private mortgage insurance.
Your sales contract will specify a time frame in which you wish to close on your new home (usually 30, 45, or 60 days from the time you have a ratified sales contract). When you apply for your loan, be sure and tell your loan officer the approximate date you would like to close so that loan processing can coincide with your wishes. Learn more about what to expect on closing day.
Interest rates fluctuate frequently, and they may even increase between the day you apply for your mortgage and when you actually close on your home. That's why many lenders offer a rate lock-in, which guarantees a rate for a set period of time. If you opt for a lock-in, make sure the expected closing date is well within the lock-in period. Ask the lender if the rate can be locked in at the time of application or only at loan approval, how long it remains in effect, whether there is an additional charge, and if you can also lock in points.
Costs and terms vary among lenders, but most require you to pay application and reporting fees, including:
Legally, your lender is required to furnish you with several types of documents and information in conjunction with your application for a mortgage loan, including:
The lender must provide you with this document within three business days of applying for a home loan. The TIL statement outlines the estimated costs of your loan, including the annual percentage rate (APR) and other terms, including points, any other finance charges, the amount financed, the payment amount and the total payments required. Because it's possible that the APR and closing costs calculated at the time of your loan application will change at the actual closing, your lender is required to give you the final version of your TIL statement at or prior to your closing meeting.
Federal law requires your lender to give you disclosure information about an adjustable rate mortgage (ARM) either when you receive an application form or when you pay a non-refundable fee—whichever comes first. Your lender should provide you with a written summary of the important terms and costs of the loan, the past performance of the index to which the interest rate will be tied, and a copy of the booklet “Consumer Handbook on Adjustable-Rate Mortgages,” published by the Federal Reserve Board.
Within three days after you have submitted your application, the lender is required by federal law to provide you with an itemized estimate of the costs to close (or settle) the loan. This report is referred to as a "good-faith estimate."
The lender must also give you a copy of the government publication, “Shopping For Your Home Loan: HUD's Settlement Cost Booklet.” This publication describes the settlement process, the nature of charges and your rights, and it also includes an item-by-item explanation of settlement services and costs. The lender has three business days after receiving your written application to give you this guide.
You may be asked to sign several authorization forms that will allow your lender to verify the information on your application. These include the authorization to investigate credit, verify your employment, look into your past rental or mortgage payment history, even review bank deposits.
When compiling a credit profile of you, your lender must certify that the credit report will only be used for the purpose of qualifying you for a mortgage loan. As part of the credit evaluation process, your lender cannot seek any subjective information from your neighbors or co-workers concerning your character, reputation, or other personal aspects unless you receive notice. These limitations are set by the Fair Credit Reporting Act.
Under the Equal Credit Opportunity Act, a lender cannot discriminate based on race, color, national origin, sex, marital status, age (provided you have the capacity to contract), religion, and the fact that all or part of your income comes from a public assistance program, and your exercise of any rights under the Consumer Credit Protection Act. Your lender also cannot ask questions about your future parenting plans, although the lender may ask about the current number of children you have and their ages. In addition, a lender is prohibited by law from asking questions concerning the applicant's spouse unless the spouse is contractually liable, the spouse's income will be relied on to repay the debt, the applicants live in a community property state or the applicant plans to use child support, alimony or separate maintenance payments from a spouse or former spouse to repay the debt.