What Is a Mortgage Application?
A mortgage application is a document submitted to a lender when you apply for a mortgage to purchase real estate. The application contains extensive information, including details about the property being considered for purchase, the borrower’s employment history, and financial situation. Lenders use the information in a mortgage application to decide whether or not to approve the loan.
Key Takeaways
- You submit a mortgage application to a lender when you apply for a mortgage or purchase real estate.
- A mortgage application requires extensive information, including the property being considered for purchase, the borrower’s employment, income, and financial situation.
- Lenders use the information in the application to decide whether or not to approve the loan.
- The1003 mortgage application is one of the most common forms, also known as the Uniform Residential Loan Application.
- The Federal Housing Authority (FHA) offers low downpayment options for qualified first-time homebuyers.
Understanding a Mortgage Application
Once you are under contract to buy a specific property, your lender will initiate the mortgage application. The mortgage application asks for a significant amount of information, so it’s best to gather all of your financial details before applying.
Although there are several versions of applications that mortgage lenders use, one of the most common is the1003 mortgage application form, also known as the Uniform Residential Loan Application, which is a standardized form used by the majority of lenders in the U.S. The 1003 form includes all the information that a mortgage lender needs to determine whether a potential borrower is worth the risk of the loan.
The 1003 loan application is a form from Fannie Mae. Fannie Mae andFreddie Mac are lending enterprises created by Congress that purchase and guarantee mortgages. As both require the use of Form 1003—or its Freddie Mac equivalent, Form 65—for any mortgage that they consider for purchase, it is simpler for lenders to use the appropriate form at the outset than try to transfer information from a proprietary form to a 1003 form when the time comes to sell the mortgage.
Mortgage lending discrimination is illegal. If you think you’ve been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, then there are steps you can take. One such step is to file a report with the Consumer Financial Protection Bureau (CFPB) or the U.S. Department of Housing and Urban Development (HUD).
Mortgage Application Requirements
The information required on a typical mortgage application includes:
Borrower’s Information
- Borrower’s address, marital status, and dependents
- The type of credit being applied for, meaning whether it’s a joint or individual application
- Social Security number and date of birth
- Current employer and address, as well as employment income
Supporting documents, such as bank statements and pay stubs, are often submitted along with the application. If you’re self-employed, then you may need to produce two years of tax returns to demonstrate proof of income.
Financial Information
This section asks for your assets or anything you own that has financial value, as well as your debts and liabilities.
- Assets include bank accounts, retirement accounts, certificates of deposit, savings accounts, and brokerage accounts for stocks or bonds
- Liabilities include revolving credit, such as credit cards or store charge cards, and installment loans, such as student, car, and personal loans
- Any real estate owned and its estimated value or rental income, if applicable
Mortgage Loan and Property
This section contains the details about the home you’re looking to purchase.
- Address of the property
- The loan amount and the type of loan, such as a purchase or refinance
- Any rental income from the property, if you are buying the home as an investment to rent it out
Declarations
This section includes a series of questions to determine your intent regarding how you want to use the property and to disclose any other legal or financial matters not included in the application.
- Will the home be your primary residence or your second home?
- Are there any judgments, lawsuits, or liens against you?
- Do you have any past foreclosures, or are you a guarantor for another loan?
Acknowledge and Agree
In this section, you sign the application stating that you believe the information you provided is accurate and true.
The information submitted on the mortgage application will be verified and examined by the bank’s underwriter, who will then decide how much the bank will loan you and at what interest rate. When your mortgage application has been approved, the bank will send you a loan estimate, which details the closing costs and a commitment letter. At this time, you may need to pay a deposit of your closing costs to cover the cost of an appraisal.
Special Considerations
The mortgage application is just one step in the loan application process. Before applying for a mortgage, borrowers should assess their finances.
Debt-to-Income
Lenders prefer a debt-to-income (DTI) ratio that doesn’t exceed 35%, with no more than 28% of that debt going toward servicing your mortgage. So, for example, if you earn $85,000 a year, your housing expenses should not exceed $2,480 a month or .35 * ($85,000 ÷ 12 months = $7,083). Besides the mortgage payment, housing expenses include homeowners' insurance, property taxes, and condominium fees, if applicable.
Private Mortgage Insurance
Lenders also will charge for private mortgage insurance (PMI) if the borrower's down payment is less than 20% of the home's purchase price. PMI protects the lender in case the borrower can’t pay off the loan.
The Downpayment
It’s important to consider the size of your down payment. A smaller down payment will lead to a larger monthly mortgage payment. Conversely, a larger downpayment of at least 20% reduces the monthly payment and helps you avoid paying PMI.
Typically, conventional mortgages require a minimum downpayment of 5%, while mortgage loans insured by the Federal Housing Administration (FHA) allow for 3.5%. Veterans Affairs (VA) mortgages often require nothing down.
Minimum Credit Score Required
FHA-backed loans are also more lenient with a borrower's credit history, requiring a lower minimum credit score of 580 versus a score of 620 typically needed for non-FHA mortgage loans. Your credit score is a personal credit rating based on your credit history, borrowing patterns, and your track record of making on-time payments.
Important
Upfront fees on Fannie Mae and Freddie Mac home loans changed in May 2023. Fees were increased for homebuyers with higher credit scores, such as 740 or higher, while they were decreased for homebuyers with lower credit scores, such as those below 640. Another change: Your down payment will influence the fee amount. The higher your down payment, the lower your fees, but it will still depend on your credit score. Fannie Mae provides the Loan-Level Price Adjustments on its website.
Pre-approval
Once you are ready to start shopping for homes, your next step is to get pre-approved by a mortgage lender. The pre-approval process includes a review of your credit and income to determine how much a lender may lend you. The pre-approval letter is critical when shopping for homes since it shows the seller that you're ready to buy and allows you to make an offer on a home.
What Are Some of the Items Required on a Mortgage Application?
Some of the details you'll need to provide when filling out a mortgage application include your name, Social Security number, employer, income, the property information you're looking to buy, the home's price, and the loan amount you want to borrow.
Who Decides if a Mortgage Is Approved?
Typically, once you submit a mortgage application and provide the necessary financial documents, the loan package goes to an underwriter who decides whether or not you will be approved for the loan.
What Credit Score Is Needed to Get Approved for a Mortgage?
Typically, most mortgage lenders need a minimum credit score of 620. However, the Federal Housing Administration (FHA) allows qualified first-time homebuyers to have a credit score as low as 580 to get approved by an FHA-approved lender.
The Bottom Line
A mortgage application is a document you submit to a lender when you want to borrow money to purchase a home. A mortgage application requires a significant amount of detail about the property being purchased, your employment, income, and financial situation. A mortgage application is one of the early steps in the home-buying process and is used by mortgage lenders to determine how much money they're willing to lend to you.
