Understanding the Loan Application Process
The Loan Application Process
Prequalification occurs before the loan process formally begins. The lender gathers financial information from you, the borrower(s), and makes a conditional determination about your qualifications for a loan. To start the prequalification process, you should contact one or more lenders to get prequalified and to determine who you ultimately want to apply for your loan with.
Income - You will need to provide them with the monthly base income for all borrowers on the loan, as well as, any overtime, bonus income, retirement income, etc. Base income & other guaranteed monthly income such as retirement income is used as it is, but overtime, bonuses, commissions and other types of income must have a minimum of a two your history and are averaged over a two year period.
Liabilities - You will also need to provide all of your monthly debt payments, including your current mortgage (PITI) if you don’t plan to sell your current home prior to closing on the new home, installment loans (auto, student loans, etc.), credit card payments (use the minimum monthly payment), etc. Payments for your utilities, insurance, cable, etc. should not be included.
Credit Information - Do you know your credit history and credit scores? If not, you can get a free credit report from FreeAnnualCredit.com and you can get your credit scores from MyFICO.com. Tell your lenders what your credit scores are and advise them if you have any credit issues showing on your credit report.
Assets – If you are purchasing, the lender will need to know how much you have for down payment and closing costs, and if you plan to get gift funds from a relative or other acceptable source to help with your purchase.
Property Information – If you are purchasing, the lender will either need a copy of your Sales Contract or will need to know what price range you are interested in or they can calculate an estimated maximum amount you will qualify for. For refinance loans, the lender will need your current mortgage balance, monthly payment, annual taxes & insurance costs and when you purchased or last refinanced your mortgage.
Note that pre-qualifying only gives an estimate of the amount you can afford, based on the information you provide. While pre-qualifying is not a requirement, it is highly recommended. Without pre-qualifying first, you may find yourself looking at houses that you aren’t able to afford. You can also examine different types of loans that you qualify for, including their benefits and drawbacks.
Once you have chosen a lender that you feel comfortable with and confident in you are ready to look for a home and apply for a loan. The application is the beginning of the formal loan process. The applicant completes a mortgage application with the chosen lender and supplies all of the required information and documentation for processing. A sample of the loan application and instructions are available on Fannie Mae’s website. Click here
The following information is required to be considered an application:
1. The consumer’s name(s),
2. The consumer’s income,
3. The consumer’s social security number to obtain a credit report,
4. The property address,
5. An estimate of the value of the property,
6. The mortgage loan amount sought,
7. Any other information the lender deems necessary for the application.
(Starting August 2015, this requirement will no long be allowed)
the application cont...
Your lender will submit your loan information to one of the automated underwriting systems (AUS) for a conditional approval. This is required for most loans these days. It does provide an advantage in that an AUS approval can allow for higher debt ratios than are allowed for manual underwrites.
The lender must provide you with a Good Faith Estimate (GFE) and a Truth-In-Lending statement (TIL) within three business days of the application date. This may be done either in person or may be mailed to you, provided it is put in the mail within the three business day requirement. If mailed to you, an additional 3 business days is required to allow for you to receive it. Your lender can also provide you and your realtor with a conditional pre-approval letter.
The lender will require you to provide the documentation in the blue box on the right, but, may not require this documentation from you until you have been provided the GFE & TIL and have acknowledged your intent to proceed with the loan. You may voluntarily provide this documentation to the lender if you wish to, for convenience and to expedite your loan approval.
Note: Be sure to disclose all information accurately and completely to your lender. All lenders are now required to report any suspicious activity to the government. Leaving out information or misrepresenting information that the lender later discovers may require the lender to file a report to the Financial Crimes Enforcement Network.
Processing The Loan
The processing team double-checks your file to make sure it's complete and accurate. Processors look for errors, misinformation, discrepancies and hidden flaws that might jeopardize your loan approval. They check the liabilities you listed against those on your credit report, paystubs and other documents. Your credit history is scanned for issues or inconsistences. If you pay child support or alimony, your complete divorce decree and child support documents will be required. All your information must be properly documented and verified.
Your income and employment will be verified with your employer to confirm that you're actively employed and that your income matches your W-2s, your tax returns and your IRS transcripts that are collected directly from the IRS. IRS transcripts are required for every loan. If you have not filed your tax returns with the IRS or they have only recently been filed, this may cause a delay in your loan approval.
Your bank statements and other assets will be reviewed. Any undocumented deposits or unusual activity will have to be explained and documented. You must have sufficient funds in your accounts for the down payment and closing costs and any reserves that may be required for the type of loan you are applying for.
The processor will order a title commitment from the title company specified in the sales contract or chosen by you, if this is a refinance loan. An appraisal will also be ordered to document the actual value of the property. When all information has been gathered and documented your loan file will be submitted to the underwriter.
The underwriter determines if your file meets underwriting guidelines for the type of loan you are applying for and that it has been properly documented. If more information is needed, your lender will contact you for the additional documentation.
You (and your spouse) attend the loan closing and sign the note, mortgage and other related papers. The closing agent will explain the loan documents you are signing and will collect the funds for the down payment and closing costs. There is an excellent video in our Rates at A Glance Video Library explaining the settlement statement, courtesy of First American Title Company. Most closing agents require a certified check written to the title company or a wire transfer to the closing agent’s bank for the amount due at closing.
What do you do if your loan is turned down?
Documents You'll Need to Apply
Last 2 Years Tax Returns
Last 2 W2's
Last 2 Paystubs
Last 2 Bank, Stock,Retirement Statements (ALL pages)
Copy of Drivers Licence
Copy of Social Security Cards
Copy of the Contract
Copy of Your Last Mortgage Statement if Refinancing
Name and Number of Your Preferred Insurance Agent
If Self Employed
Last 2 Years Corporate or Partnership Returns
Last 2 years K1's
P&L Year to Date
If Your Down Payment
is From a Gift
Copy of the Donors Bank Statement Where the Gift is Coming From
Copy of the Donor Check
Copy of the Deposit Slip
Down Payment is Coming From 401K/Retirement Loan
Copy of the 401k Statement
Copy of the Loan Terms
Copy of the Check
Copy of the Deposit Slip
Have a questoin about your specific situation? Our staff of experts are happy to answer your questions! We are NOT lenders but have over 100 years of lending experience.