Loan Applications

Loan Applications

There are many reasons why an individual may want to apply for a mortgage loan. One reason is to refinance the property. Another and more common reason is to purchase a property.

In a typical real estate purchase transaction, prior to making an offer on a property, the buyer should determine whether they qualify for the loan that will be used to purchase the property. Typically, at the time the buyer writes an offer and when the offer is presented to the seller, either a prequalification letter or preapproval letter will accompany the offer indicating that the buyer is qualified to purchase the property with the loan amount stated in the offer.

A prequalification or preapproval letter is not a guarantee of a loan approval.

Prequalification is the loan amount estimate given by the mortgage loan originator that the buyer will qualify for based upon the information regarding income and other financial conditions provided by the borrower. None of the information provided is verified.

Preapproval is a step above prequalification. A preapproval letter provided by a mortgage loan originator states an estimate of the amount of a loan for which the buyer qualifies. Prior to providing the preapproval letter the mortgage loan originator verifies the income and assets of the buyer. However, preapproval is not loan approval as final approval is subject to:

  • the property being sufficient to support the loan amount, which is determined by an appraisal.
  • the property is in a condition that is satisfactory to the lender, typically determined by an inspection.
  • the property being financed must have marketable title as indicated by a title report or an abstract of title.
  • the buyer's financial situation does not substantially change, meaning that the buyer's income, employment, and credit status must be maintained.

If the buyer's offer is accepted, the real estate purchase and sale agreement between the seller and buyer will stipulate the number of days in which the buyer must make formal loan application.

Our attention will now turn to completion of the loan application.

Important Information for All Loan Applications

Initiating a new loan is known as the process of loan origination. It involves the mortgage loan originator obtaining financial and personal information relating to the potential borrower to determine the amount and type of loan would be most suitable for the transaction. A loan application is prepared by the mortgage loan originator so that as the loan goes through the loan processing or underwriting process, the underwriter will have the information on the borrower, property and entire loan transaction in order to make a decision as to whether the loan will be approved.

When taking any loan application, there are certain pieces of information that will be required.

For ALL loans, you will need:

  • the Social Security Number for all borrowers and a copy of the Social Security Cards.
  • the most recent, original Leave and Earnings Statement (LES) or paystub(s) covering a 30-day period, showing the borrower's name and current year-to-date (YDT) earnings.
  • W-2s from the past two years, as these will be used to double check income and addresses.
  • if the borrower is self-employed (with greater than 25% ownership) or commissioned, the two most recent years' individual Federal Tax Returns and/or Corporate Tax Returns. The borrower's original signature must be on the returns. All lenders will utilize a Request for Transcript of Tax Return (IRS Form 4506-T), so it's best to collect all returns up front.
  • a copy of current lease(s) on any rental property, although leases may not be used in all cases, and a copy of Schedule E from the most recent two years' Federal Tax returns.
  • for pension or Social Security income, a copy of the Awards Letter and evidence of receipt of the income for the past two months (e.g., a bank statement showing direct deposit or remittance stub).
  • for note income, a copy of the Note Receivable and evidence of receipt for the past two years (e.g., an income tax return showing interest Income from the Note or bank statements showing deposits or cancelled checks).
  • original bank statements for all accounts covering the most recent two-month period.
  • a list of all debts, including account numbers, balances, and minimum monthly payment amounts.
  • addresses for the past two years. If the borrower lives in rental housing, the borrower must provide the name, address, and phone number of the landlord.
  • a Divorce Decree or Separation Agreement, if applicable.
  • a check payable to the mortgage company to cover the cost of the credit report.
  • picture ID such as a state-issued driver's license.

For Department of Veterans Affairs VA home loans, you will need:

  • a Certificate of Eligibility (COE).
  • a Statement of Service for active duty military, which must be dated within the past 30 days, or a Certificate of Release or Discharge from Active Duty (Form DD214) for discharged military.
  • the amount of child care expense paid for the care of minor children.
  • current orders for active duty military.

For real estate purchase loans, you will need:

  • a fully-ratified real estate sales contract, including any addenda, and a copy of earnest money check. The earnest money check must be cashed and cleared by closing.
  • the names and telephone numbers of all real estate agents involved in the transaction.

For refinance loans, you will need:

  • a copy of the deed, note, or mortgage, and the Closing Disclosure (or the older HUD-1) from the purchase of the property.
  • a copy of the existing survey.
  • a payment coupon from the existing mortgage with an account number and customer service number.
  • a copy of the current Hazard Insurance policy, and the name and phone number of the borrower's insurance agent.

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