A crucial piece of paperwork that everyone applying for a mortgage has to file is the Loan Application form.
With the loan application, lenders can decide whether to approve the loan, offer an alternative program or completely deny the borrower’s application.
Understanding the different sections on a loan application form and completing each accurately will help not only the lender but also the borrower save valuable time and effort.
Although there are many different loan application forms per lender, there is a standard format on which every form is based. No matter how different they may look, they ask for the same information.
Here, we dissect a standard loan application form into its major parts. Learning about its anatomy will help the borrower supply all the needed information the lender needs.
I. The Type of Mortgage & Terms of the Loan
The loan application does not only give us the information about the borrower, it also tells us the basic information about the loan.
Here, we will see the type of mortgage loan the borrower is applying for. The “Amount” field shows us the amount of money borrowed. The interest rate is also shown in its own field, as well as how long it will take you to pay off the loan completely (shown in the number of months).
Another important box is the “Amortization type” field. This will tell how you are going to pay for the principal and the interest rate.
In this “Amortization” field, there’s “fixed rate” which means the interest rate will not fluctuate within a given period of time. “ARM (type)” stands for Adjustable Rate Mortgage, which is the opposite of the fixed rate type.
Another one under “Amortization type” is the “GPM” or the Graduated Payment Mortgage. As the name suggests, the loan starts off with low monthly payments which would then gradually increase over a specified time.
Other amortization types which do not fall into any of the three will take the “Other (explain)” tick box. It is a must to explain the said type to ensure that both the borrower and the lender are on the same page.
II. Property Information & Purpose of Loan
This section shows the essential information about the property in subject. It includes the property’s complete address, how many units it has, and shows whether the borrower will live there or it is intended to be an investment property.
In this section, it tells where the loan will be used. Is it to purchase the property, to refinance a current mortgage, Or for any other reason?
For lenders, it also means ‘collateral’. Because all loans are risk-based no matter what credit score and history a borrower has, the lender needs some security in case the borrower fails to meet his/her payments.
III. Borrower Information
Now, the “Borrower Information” section is very important. The data provided here is critical when the lender does some checking.
The information will be used to check both credit and employment histories. Also, this will tell the lender if the borrower or the co-borrower has dependents, and if any or both of them are married. It tells whether the present address they are residing is owned or rented.
This also shows the number of years they spent in school. Why is this important? This will help lenders assess the borrower’s capacity to pay the loan based on the borrower’s career. This will also help explain the amount of student loan they have.
IV. Employment Information
The information in this part of the loan application form is helpful for lenders to assess the borrower’s capacity to repay the loan. You can easily tell whether the borrower is self-employed or if he/she has a job.
Basic employer information such as the name, complete business address and contact number is also present. This comes handy when employment verification kicks in.
Why does the lender have to know your position and the number of years you’ve had this job? Is the lender just being invasive?
The number of years on your current job helps the lender establish your risk level. It will help tell how stable your employment is. That is why this information is asked for the borrower.
If the borrower has another employer or another job, it will also be shown here. If you happen to be in a job for less than two years, this section will provide information as detailed as the exact date you started in the said job.
V. Monthly Income & Combined Housing Expense Information
This part breaks down both the borrower and the co-borrower’s incomes and their combined housing expenses.
The income and expenses columns are placed side by side, allowing easy comparison for both lender and borrower. Calculating how much is left from their income after the expenses are subtracted shouldn’t be difficult.
Moreover, if the borrower has other sources of income such as child support, alimony or a sideline job, it can be traced here.
Is the borrower paid hourly, a salary or through commission? How often does he/she receive the pay? Does it come weekly, bi-weekly, or monthly? These are significant questions with which this part of the loan application form supplements.
VI. Assets and Liabilities
Side by side, you can see the borrower’s assets and liabilities. This section is the longest and perhaps the most detailed. It is important that it should be filled out correctly.
The “Assets” column go through all the borrower’s checking and savings accounts, real estate properties owned, stocks and bonds if there are any and even, cars owned.
The “Liabilities” column will provide a list of all the debt and financial responsibilities of the borrower. Examples of these are mortgage liabilities, car loans, union dues and child care.
VII. Details of Transaction
This section basically breaks down the loan transaction to every detail.
This segment of the loan application contains very important questions about the borrower that is not covered by any other field. The loan application tells the story of the borrower. This part completes and ties up the story.
It asks about the borrower’s possible involvement in any lawsuit, or if he/she has declared bankruptcy in the past. These cases could mean the borrower is a high risk for lenders.
It also includes questions like “Are you a U.S. Citizen?” or “…a permanent resident alien?” and if the home is going to be the borrower’s primary residence or not.
IX. Acknowledgment & Agreement
By affixing your signature as the borrower or co-borrower, you acknowledge that all the information provided is true and correct.
There are U.S. Codes and Laws governing this information and its provision, and the intentional falsification or negligent misrepresentation thereof.
X. Information for Government Monitoring Purposes
The Federal government wants to monitor if the lender complies with the guidelines and laws that provide equal housing opportunities for everyone.
The government can use this information to check if there is any discrimination happening.
It is not required for you to furnish it but it is highly encouraged.
We all want a smooth loan process, the loan application is a good place to start. Having a good understanding about it will help make the process quicker.
And if in case there are fields you do not know what information to supply with, the lender can always assist you and make clarifications. It is both the lender and the borrower’s responsibility that the form is filled out correctly and truthfully.
Note: The form used as an example for this article is Fannie Mae’s Uniform Residential Loan Application. Fannie Mae Form 1003 7/05 (rev 6/09)