A borrower's guide to mortgage applications
Michelle Ruiz (L) and Nilson Ruiz listen as Wells Fargo home mortgage consultant, Michael Carreras, helps the potential homeowners with their an application for a down payment assistant grant at the Miami Airport Convention Center in Miami. (June 1, 2012) Credit: Getty Images
A mortgage application serves a simple purpose: to help the lender decide whether to lend money to the borrower. But the industry standard Uniform Residential Loan Application, also known as Fannie Mae Form 1003, is more complicated than that straightforward intent might suggest.
This section-by-section summary should help you figure it out.
A two-year job history typically is a minimum requirement, according to Jay Dacey, a mortgage broker at Metropolitan Financial Mortgage Co. in Minneapolis. That means specificity is crucial. "If you get lazy and two years was really one year and 10 months, then all of a sudden the whole loan could be messed up," he warns.
Virtually all lenders require you to sign Internal Revenue Service Form 4506-T, which authorizes the lender to request a transcript of your tax returns.
One potential glitch for self-employed borrowers early in the year is that last year's earnings can't be used for loan qualification purposes until the lender can obtain verification of a current tax return from the IRS, Dacey explains. It takes four to six weeks for the IRS to process and verify a Form 4506-T.
Retirement savings typically aren't counted at 100 percent, Dacey explains, due to investment volatility and early withdrawal penalties and taxes. As a general rule, retirement savings are marked down to 60 percent or less, he says.
Liabilities can be listed from the borrower's credit report, Cook says. Alimony and child support payments also must be disclosed, so the lender can evaluate the borrower's financial obligations.
The separate Schedule of Real Estate Owned gives the lender a snapshot of the borrower's other properties, if any. This section is especially important for move-up buyers who intend to keep their current home as a rental.
"Tell your lender everything," he advises. "If it can be fixed, we can fix it up front. If it can't be fixed, there's no sense getting into escrow on a house you're never going to close on."
