7400.362 - Family Life Management
School of Family and Consumer
Spring Semester - T-Th 10:45-12:00 Noon
Instructor: David D. Witt, Ph.D.
Applying For a Home Loan
Being prepared for the sheer volume of information needed to secure
a home loan is an important element in successfully buying a residence.
The actual process involves finding a house to buy, making an offer, finding
a lender - and having good credit. Getting all those parts of the puzzle
into place can be facilitated by understanding some basic rules of the
home buying game.
To improve your chances of loan approval and speed up the process,
you should be aware of:
All the information your lender (the bank or mortgage
company) requires of you.
The type of mortgage you want to purchase.
Some of the possible costs of making an application
and securing a mortgage loan.
Being prepared with the information you need to give:
Take a look at what is called a Uniform
Residential Loan Application. This document requires in-depth information
about everyone making the loan application (you or you and your spouse).
Income from all sources, credit history, a description of the property
you want to purchase - everything financial about you.
Here's the details (everything for the past two years):
A nice touch, and one that will make the bank officer's job easier (because
the information is in order and because you appear very organized) is to
put everything in a nice binder - complete with tabbed dividers and summaries.
Social Security Number and Birth Date for and any
Recent Pay-stub showing year-to-date earnings.
W-2 Tax Forms.
Employers names, addresses, and telephone numbers.
Bank Account Information including account numbers and current balances
all other accounts
Retirement funds, CD's, Bonds, Stocks
Life Insurance value
All other valuable items
Liabilities & Debt
Other loans on cars, tuition, credit cards, installment loans along
with information on each creditor and balances.
Current and Previous Addresses
Present home's market value (may need an appraisal)
Your Mortgage payment, Lender Information, Current mortgage
payment, outstanding balance.
Agreement to Purchase new property (this can wait until you find a property
Basically the lender will tally up your curent assets, income and debt.
After you have proven yourself as a reliable risk (you pay on time,
you have good credit, you are employed and stable).
After that, the ratio of income to debt is really the only thing they
are interested in.
The Type of Mortgage You Want
You’ll be asked to specify the type of mortgage you want and they come
in a host of zany colors:
They type of mortgage you choose will have consequences for things like
the monthly mortgage payment you have to make and the size of the mortgage
loan you can afford to pay for.
Here are some variables you ought to know about (or - the reason banks
have all the money):
Be prepared - know your stuff.
The Mortgage Amount - the size of the actual loan will be the purchase
price of the house minus your down payment.
The Down Payment - 10% of the purchase price is a solid down payment, and
can be a bit steep for young buyers. The lender will probably want
at least 5% (sometimes when it is a "buyers market" and interest rates
are low, there are "deals"). You might also keep an eye out for any special
rates for which you might qualify - for example, Veterans Administration
(V.A.) loans are often made with no down payment and a break on interest.
The Settlement Date is the date by which you wish to close the loan on
your new home and take possession.
The Lock-in Interest Rate - since mortgage rates vary sometimes daily,
and you won't have a firm rate until money exchanges hands or your lender
agrees to make the quoted rate the one for you.
Application Costs - here's a catch. Lender's often will charge you fees
for processing your loan, such as:
Application fee (may cover the Appraisal fee)
Credit Report Fee - even if you generate your own credit report, the lender
will do this as well.
Appraisal Fee - the lender will send out an appraiser to estimate the market
value of the house you are trying to buy.
Mortgage Points - 1 % of the mortgage balance after downpayment. Buying
points when you close your mortgage can reduce its interest rate, which
in turn reduces your monthly payment. But each "point" will cost you 1%
of your mortgage balance. When interest rates are high, lenders are prone
to want buyers to do this. When rates are low, they are more flexible.
Buying 2 discount points on a $100,000 loan costs $2000 and reduces your
monthly payment from $720 to $699 with an interest rate of 7.5% - not much
saving there. But over 10 years of mortgage payments you will save
$2735 in interest.