Applying for a Loan

Your lender will need a complete picture of your financial situation to help determine how much home you can afford. You and the loan officer will fill out the Uniform Residential Loan Application, 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 you wish to buy. The process will go much smoother if you have everything with you when first meeting with the loan officer.

Determining your down payment

As part of the application process, you must state how much of a down payment you can make. Obviously, the bigger the down payment, the smaller the mortgage. As little as three percent down may be possible. Qualified veterans may be able to obtain a loan with no down payment at all through the VA home loan program. On loans with less than 20 percent down, you may be required to purchase private mortgage insurance (PMI) which protects lenders against losses. The cost of PMI will be reflected in slightly higher monthly payments and, possibly, an additional fee at settlement.

What you will need for the application:

• Agreement or contract of sale
• Employment history
• Income information
• Source of down payment and closing costs
• Credit information
• Real estate owned
• Application fee

There are special situations regarding self-employment, rental income and the like which require additional information. Your loan officer can tell you what else you will need. If you are in doubt, feel free to call and ask!

Application fees

Typically, lenders charge an application fee which covers the cost of a credit report, an appraisal of the property, and possibly, determining if the property is located on a floodplain.

Some lenders may not charge an application fee, but may increase the loan rate or other costs to cover these charges. It's important to have a clear understanding of the services covered by the fee and how they may be paid.

Application legal requirements

Within three days of your loan application, your lender is required to furnish you with a copy of Settlement Costs, a booklet prepared by the Department of Housing and Urban Development. It describes the settlement process and the typical costs that buyers and sellers often must pay at settlement. You may even want to ask for a copy before applying because the information is valuable.

You'll also receive a Good Faith Estimate of settlement charges, based on your lender's past experience in the area where the property is located.  These charges may include:

• Loan origination fees are a percentage of the loan that cover the lender’s administrative costs. The loan discount, called points (with each point being 1 percent of the loan), is extra interest paid to the lender to make up the difference between market interest and the interest of the loan.
• Other charges at closing may include the costs of a survey, appraisal or inspection, as well as the lender’s services in obtaining mortgage insurance for you. If you assume a mortgage, you’ll pay an assumption or transfer fee.
• Charges for fees include title/abstract searches and recording and transfer charges.
• Mortgage interest, the first year’s hazard insurance, and first year’s mortgage insurance (if required) are paid to the lender in advance.
• Reserved deposits used by the lender to pay for hazard insurance, property taxes and possibly mortgage insurance are paid at this time.
• Commissions and other fees include a variety of services, such as document preparation, notary services, handling the schedule, warranties and others.

In the Event your Loan is Denied

Lenders have 30 days from the application date to explain in writing why you were denied a loan. If you were denied because of credit, you are entitled to a free copy of your credit report. If there are any errors, you may challenge them. Some lenders have a second level of review. You also have the right to apply at another institution. This does not guarantee success; you may need to correct problem credit.

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