Mortgage Application

A mortgage application is a document submitted by one or more individuals applying to borrow money to purchase real estate. The mortgage application contains information about the property the potential borrowers want to purchase, such as its address, age and price, as well as financial and background information about the borrowers themselves. Lenders and underwriters use the information submitted on the mortgage application to determine whether money should be lent to the applicants and if so, how much, for how many years and at what interest rate. 

An actual mortgage application is just one step in the application process, which begins with assessing your finances. Most financial planners recommend a family’s housing expenses not exceed 35 percent of their pretax income. So for example, if you and your spouse earn a combined $85,000 a year, your housing expenses should not exceed $2,480 a month. Housing expenses include not just your mortgage but home insurance, property taxes, condo fees and private mortgage insurance (PMI) if required.

Another important factor in the mortgage application process is determining the size of your down payment. Conventional mortgages generally require a minimum of 5 percent while FHA mortgages ask for 3.5 percent; VA mortgages often require nothing down. But any down payment under 20 percent will require PMI.

The next step is to approach lenders for pre-qualification. This is a fast process that involves running your credit check so the bank can make a rough guess on how much they will lend you. It allows you to start shopping for homes.

Once you are under contract to buy a specific property, your lender will initiate the actual mortgage application. The mortgage application asks for financial data on each applicant, such as net worth, employment and annual income. Supporting documents, such as bank statements and pay stubs, are often also submitted along with the application. If you are self-employed you will need to show two years of tax returns. The application also asks for applicants' Social Security numbers, current addresses, address history and other personal information so that the applicants' identities and credit histories can be verified and examined. An underwriter will then decide how much the bank will loan you, and at what interest rate.

Once your mortgage application has been approved, the bank will send you a loan estimate, which details the closing costs, and finally a commitment letter. At this time you may need to pay a deposit of your closing costs to cover the cost of an appraisal.