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Mortgage Application Process
Some Things to Expect
The mortgage application process requires considerable paperwork.
First there is the application form, which asks for detailed
information about you, your employment record, the house you want to
purchase, etc. The lender will need documentation pertaining to your
personal finances--your earnings, your monthly expenses, and your
debts--to help gauge your willingness and ability to repay the
mortgage.
Lenders also will examine your file at the credit bureau
to learn if you pay your bills on time. A lender may reject your
application if the report shows that you have a poor credit history.
Thus, we make sure your credit file is accurate before your
application is presented to the lender. You have a right to know
what information is contained in your credit report and to have
someone from the credit bureau help you understand what the report
says. We will provide you the names of credit bureaus utilized in
your loan request.
You can prepare for questions about your
financial condition by using the worksheets in this brochure.
Worksheet 1 (left) helps determine how much money you might have
available for a monthly payment--just list all items of income and
payments required on debts that won’t be paid off within ten months.
There’s also a place for the estimated mortgage payment. To figure
the mortgage payment, we will begin by asking how much you want to
borrow. The maximum loan amount will be determined by the value of
the property and your personal financial condition.
To determine the value of the property, a real estate appraiser will
give an opinion about its value. The appraiser's opinion can be an
important factor in determining whether you qualify for the size of
mortgage you want. Lenders usually will lend the borrower up to a
certain percentage of the appraised value of the property, such as
80 or 90 percent, and will expect a down payment making up the
difference. If the appraisal is below the asking price of the home,
the down payment you planned to make and the amount the lender is
willing to lend you may not be enough to cover the purchase price.
In that case, we may suggest a larger down payment to make up the
difference between the price of the house and its appraised value.
When looking at your projected mortgage payment and existing debt,
some lenders might use ratios such as "28 and 36" to determine
whether you qualify for the loan. These are commonly used ratios.
In the case of "28 and 36," the 28 refers to the percentage of your
gross income (before taxes) that may be spent on housing expenses,
including principal and interest on the mortgage, real estate taxes,
and insurance. The 36 refers to the income that may be spent for
payments on all your debts (including the mortgage): the monthly
payments on your outstanding debts, when added to the monthly
housing expenses, should not exceed 36 percent of your gross income.
Ratios used to evaluate your application vary according to down
payment, credit scaores and reserves. Use Worksheet 2 to calculate
your ratios.
Be prepared to provide certain documentation about your income (W2s
for prior years and year-to-date pay stubs), current debts (account
number, outstanding balance, and creditor's address for each), and
the purchase contract for the home you want to buy. When you file
your application the approval process time will vary. The time may
vary depending on the complexity of your mortgage, current market
conditions, and whether you have to provide additional information.
It's common for a decision to be made within hours after the lender
receives all the necessary information. Applications for FHA or VA
loans may take longer.
If Your Loan Is Denied
If your application is turned down, federal law requires the lender
to tell you, in writing, the specific reasons for the denial. We
will make sure you understand the reasons given—often we are able to
find answers or alternatives that will satisfy the institution’s
lending standards. Even if that doesn’t happen, understanding fully
why the loan was denied may improve your chances with the next
lender we contact. Factors that may affect the loan decision
include:
Down Payment
Is your proposed down payment sufficient? Many of our lenders offer
mortgages with low to no down-payment requirements.
Appraisal
Is the size of the mortgage you need too high, given the property’s
appraised value? Have similar houses in the neighborhood sold at
prices comparable to yours? Did the appraiser overvalue the
property? We and the lender will examine the appraisal to insure the
integrity of the purchase price.. You also have the right to receive
a copy of the appraisal if you have paid for it.
Credit History
Lenders may doubt—because of your level of debt or credit history,
your ability to make the monthly payment. We will match your debt
ratios to the lender’s standards. If there were special
circumstances surrounding old credit problems, we will make sure the
lender listens to the explanation.
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