What Is an Initial Mortgage Loan Application?

Written by Bill MacDonaldSeptember 14th, 20226 minute read

Initial mortgage loan application

When you apply for a mortgage, the lender will require a variety of documents to process the mortgage application. All banks and mortgage brokers will request the same documentation at mortgage application (and pre-approval) because mortgages must meet federal loan guidelines.

Make sure you have a driver’s license or state identification card for all applicants. The lender may also want a copy of your social security card for each applicant and co-applicant.

The mortgage application can be somewhat worrisome for the first-time home buyer or can be a dull, monotonous procedure for someone who has previously applied for a mortgage.

The best way to get your mortgage application approved quickly is to gather all of your personal documentation and have it ready when you apply for a mortgage.

Income documents for a mortgage application

When you apply for a mortgage, the lender will ask for all of your W-2s from the previous two years. The lender also needs the employers' names, addresses, and phone numbers.

Pay stubs for the last thirty days must be provided to the lender. Do you have your past two years' tax returns? If that's the case, bring them along to the mortgage application. It's not going to harm you.

The loan officer will apply a debt-to-income calculation to see whether your monthly income and debt are in proportion to your monthly mortgage payment.

If the monthly debt (including mortgage payment) is $1,000 and the monthly income is $5,000, the lender will divide the monthly debt ($1,000) by the monthly income ($5,000), resulting in a debt-to-income ratio of 20%.

Bonus income, overtime, and employee business expenses need to be thoroughly documented.

Any money received from Social Security, retirement, or disability can be used as income when you apply for a loan. The lender will require copies of the direct deposit bank statements and the award letter.

Additional paperwork is generated by self-employment and commission revenue.
The lender will need tax returns with full schedules, including K-1s if applicable, for the past two years if you get 25% or more from a company or earn commission income.

Be ready to present an accountant with a recent profit and loss statement and balance sheet. If you control 25% or more of a business, you must provide copies of any W-2s and/or 1099 forms, as well as corporate or partnership tax returns for the preceding two years.

You need checking & savings statements for a mortgage application

Gather up all checking and saving account statements for past three months. Make sure you have all pages, even the last page. Be ready to explain any large deposits. Large deposits are a red flag for the mortgage underwriter because a large deposit may be a loan, and mortgage applicants are prohibited from borrowing money to be used for the down payment and or closing costs.

Also included with savings are the most recent IRAs, CDs, money market funds, stocks, 401k, and profit sharing statements. Even if you are not using CDs, money market funds, stocks, 401k, and profit sharing savings toward the purchase or refinance loan, showing the lender additional savings improves the likelihood of approval.

If you are using gift money from your parents, relatives, or organizations to help cover the down payment or closing costs, the lender will provide you with a gift letter. Do not move any money into your saving or checking account before your mortgage application. The money transfer from one person to you must transition in a precise way.

This usually requires a copy of the bank statement from the gift-giver and a deposit slip of the gift money going into your account.

Bankruptcy, divorce, child support documentation

If you’ve had a bankruptcy, you may need to bring a copy of the petition for bankruptcy and discharge, including supporting schedules.

Divorce decree and property settlement will be required. If you are in the middle of a divorce, the lender may permit the mortgage to go through, provided the settlement agreement is recorded.

Child support may be used as income if the child support was received over the previous 12 months. Child support is used as a monthly debt if paid. Either way, have your child support papers ready for the loan officer.

Driver's license or government issued photo identification

The Patriot Act requires lenders to obtain a copy of a photo identification card. Acceptable photo ids' include a valid driver’s license, a valid state issued ID card (must include photo), military ID, or a passport.

Amendatory clause for FHA, VA, and USDA home loans

The Federal Housing Administration (FHA) does not require additional personal information, however, the FHA does require the sales contract to contain the "amendatory clause and real estate certification form."

This form is required for the FHA, VA, and USDA home loans. The form states in so many words that there are no side agreements between the buyer and seller that are not stated in the sales contract; and that the home seller can not require the buyer to purchase the home if the appraisal is lower than the sales price.

The FHA will still allow the sale if the appraised value is lower, however, the home buyer must pay for the difference between the low-appraised value and sales price. Home buyer, seller, and all real estate agents are required to sign this document.

Certificate of eligibility for a VA home loan

VA home buyers need a certificate of eligibility and copy of DD214 discharge paper for VA application, however, the lender may be able to obtain the DD214 electronically from the Veterans Administration. Also required is the name and address of the nearest living relative.

Refinance documents

Homeowners who apply for a refinance loan will need a copy of the note, deed of trust (mortgage) or mortgage, deed, and previous settlement statement (if available), survey, and insurance information.

Purchase documents

The lender needs a copy of the sales contract signed by all parties. Please make sure the copy is legible. If the lender is unable to read the contract, he will require a legible copy signed by all parties.

If you want to impress the loan officer and shorten the application time, consider completing the Uniform Residential Loan Application.

Frequently Asked Mortgage Application Questions

How long does loan application take?
A good estimate is one hour. Loan applications require significant paperwork and data input. The best way to shorten the application is to have all the required documents available.

How long does a mortgage application take to be approved?
A mortgage application can take a few days or can take up to a month or more. The lender is required to verify employment, income, assets, and credit.

Each applicant is different. If the applicant is single, has the same employer for two years, and only one bank account, then the approval process can occur quickly.

But if the applicant works as a union carpenter and worked with 40 employers over the previous two years and doesn't have all of his W-2's, then, expect a month or better.

How many months bank statements for a mortgage application?
You should have the three most recent bank statements – all pages.

A loan estimate must be provided by the lender.

The loan estimate contains crucial information such as the anticipated interest rate, monthly payment, and total loan closing expenses.

The Loan Estimate also shows you how much taxes and insurance will cost, as well as how interest rates and payments will change over time.

Furthermore, the form shows whether the loan has any unique characteristics that you should be aware of, such as penalties for paying off the loan early (prepayment penalties) or rises in the mortgage loan amount even if payments are paid on time (negative amortization).

If your loan includes a negative amortization feature, it will be included in the loan product description.

Within three business days of receiving your application, the lender must give you a Loan Estimate.

SOURCE: Consumer Financial Protection Bureau (CFPB)