There are 10 sections in the mortgage loan application and this week we cover the second half of the application. Your loan officer will assist you with many sections of this document, especially as they relate to the type of mortgage and terms of the mortgage loan.Last week’s blog we discussed the first half of the forms and paperwork necessary to purchase a home. Below are the additional sections and what you need to know about them.
Section VI: Assets and Liabilities
This section indicates your current financial position — how much you own (assets) versus how much you owe (liabilities). The difference between the two is your net worth. If you have bank accounts, savings, retirement funds, investments, cars or trucks — even cash that you keep at home — they can be considered assets that support your application. You will need to provide copies of all of your account statements for at least two months.
For the Liabilities section, you will be asked to itemize all of your current bills, loans and other debts, including current balances and monthly payments. Debts include automobile loans, credit cards, finance company loans, bank and credit union loans and existing mortgages, including home equity loans.
Section VII: Details of the Transaction
This section gives the all-important details of the mortgage loan — presented as estimates — including the purchase price of your home, closing costs and the total cost of your mortgage loan (including principal, interest and fees), among other information. Your loan officer will complete this area of the application. Make sure that it agrees with your understanding of the transaction and look closely at the estimated closing costs.
Section VIII: Declarations
In this section, you will be asked to answer questions about any pending legal problems or other factors (past or present) that may influence your financial situation. For example, have you ever declared bankruptcy? The information, in combination with your credit report, will help your lender assess your ability to pay the mortgage. In addition, you will be asked to affirm if you are a U.S. citizen or a permanent resident alien. If you are not a U.S. citizen but can provide documentation to establish a legal presence in the U.S., you can still obtain a mortgage.
Section IX: Acknowledgment and Agreement
Your signature is your word of honor. In this section, you sign your name, saying that the information you are providing is accurate and true to the best of your knowledge.
Section X: Information for Government Monitoring Purposes
In this section of the application, you will need to provide such information as your ethnic origin and your race. The U.S. government wants to be sure our housing finance system meets the needs of every racial and ethnic group in the country. It is one way they gather the statistics they need to ensure the system works fairly for everyone.
Pre-Approval and It’s On to the Next Step
Once the application is complete, your loan officer will review it with you and ask you and any co-borrowers to sign it. Your loan officer will then send it through their organization to obtain approvals. If it’s approved, you will receive a pre-approval letter, which is the lender’s conditional commitment to lend you a specific amount of money for the purchase of your home.
With that pre-approval, you will know just how much house you can afford to buy. While this is helpful information, you need to decide for yourself if you can live comfortably with the amount of your suggested mortgage and the associated monthly mortgage payment.