Whichever lender you have decided to go with, the application form will likely be very similar: a detailed report of your personal finances, your debts, your assets, and your credit. All of this information is to help the lender determine what the amount of risk involved in giving you the loan.
The two most crucial factors in this decision are: 1. your willingness to pay, and 2. your ability to pay. Your ability to pay back the loan is calculated by factoring length of employment, salary amount, and any outstanding debts. The loan officer determines your willingness to pay by asking you very specific questions, such as what you are planning to do with the property (if buying a new home), and by looking at your bill payment history. Basically, the longer your current employment, the better it will look to the lender, along with steady, punctual utility and credit card payments.
Most lenders use what is called the Uniform Residential Loan Application Form, which is divided into six sections: personal information, income, assets, credit information, property information, and debts.
Personal information may include a social security number, marital status, number of dependents, extent of education, current and previous addresses, occupation, and detailed employment information. Your income verification will include all sources of monthly income, including: bonuses, overtime, commission, retirement, interest, dividends, and any other outside sources. Assets include any paid automobiles, rental properties, homes, bank accounts, stocks, bonds, life insurance policies, etc.
Credit is perhaps the single most complicated and potentially damaging aspect of an assessment. One of the big mistakes that people make is not checking your credit before you apply for the loan. That way, if there are any mistakes or any outstanding debts you were not aware of, you can take care of them beforehand. Be realistic about your credit history. If you have a poor track record for paying bills on time and no balancing factors such as timely car or mortgage payments, then you might want to consider what is commonly called a “bad credit mortgage ” . Other high-risk borrowers, according to the lenders, are those who are self-employed (who cannot provide documented, auditable accounts) or who have moved repeatedly within the last five years.
Your verifiable property information should include (if applicable), the type of property, a copy of the purchase contract, the address of the property, and perhaps a copy of the down payment made to the seller. Debts include expenses such as child support or alimony, or outstanding loans or bills, including any liens, mortgages, car loans, credit card bills, school loans, etc.
For more information on understanding credit, visit our credit page.