Your lender will need a complete picture of your financial situation to help determine how much home you can afford. You and the loan officer will fill out the Uniform Residential Loan Application, a four-page document that asks in-depth questions about you, your income, your assets and liabilities and your credit as well as a description of the property you wish to buy. The process will go much smoother if you have everything with you when first meeting with the loan officer.

Determining your Down Payment

As part of the application process, you must state how much money you will have for a down payment. The bigger the down payment, the smaller the mortgage. As little as three percent down payment may be possible. There are also programs available for different groups of individuals, for instance, qualified Veterans, Teachers, and Peace Officers all have special programs they may qualify for. You will discuss various options with the lender, so make sure and tell your lender any affiliations you have, as it could help you with the program the lender finds for you.

Loans with less than a 20% downpayment will likely be subject to Private Mortgage Insurance (PMI). PMI protects the federally insured lenders against losses. Don't be alarmed about PMI, ask your lender to compare the cost of the PMI versus the cost of not going with a PMI loan. You may be paying extra money (on a second loan) to avoid paying less PMI. Your lender should give you a good faith estimate which lays out in writing what you should expect to pay monthly and what the costs of the loan will be for each loan program you are considering. PMI is usually tax deductible, so ask your tax advisor. 

What you will need for the application:

• *Signed Purchase and Sale Agreement
• *Employment history for 2 years
• *Income information
• *Source of down payment and closing costs
• *Credit information
• *Real estate owned
• *Application and possibly appraisal fee

There are special situations such as self-employment, rental income, and the like which require additional information. Your loan officer can identify any thing else that you will need. When in doubt, call to find out.

Application fees

Typically lenders charge an application fee which covers the cost of a credit report, an appraisal of the property, and possibly, determining if the property is located on a floodplain.  These are costs that the buyer will be responsible for even if the sale does not close succesfully, so the lender will charge up front to make sure they are paid. The buyer will receive a credit at the time of settlement to show that the charges were already paid.

Some lenders may not charge an application fee, but may increase the loan rate or other costs to cover these charges. It's important to have a clear understanding of the services covered by the fee and how they may be paid.

Application legal requirements

Within three days of completing your loan application, your lender is required to furnish you with a copy of Settlement Costs, a booklet prepared by the Department of Housing and Urban Development.  It describes the settlement process and the typical costs that buyers and sellers often must pay at settlement.  You may even want to ask for a copy before applying because the information is valuable.

You'll also receive a Good Faith Estimate (GFE) of settlement charges. The GFE will list all the anticipated charges that you will be paying including whether the charges are one time fees, or monthly amounts:

• *Loan origination fees are a percentage of the loan that cover the lender’s administrative costs. The loan discount, called points (with each point being 1 percent of the loan), is extra interest paid to the lender to make up the difference between market interest and the interest of the loan. It typically costs 1 percent to reduce the interest rate of a loan by 1/8th of a percent.
• *Other charges at closing may include the costs of a survey, appraisal or inspection, as well as the lender’s services in obtaining mortgage insurance for you. If you assume a mortgage, you’ll pay an assumption or transfer fee. Be very careful if having a loan assumed. Most lenders will not release a the assignor from responsibility in the event that the assignee defaults. 
• *Charges for fees including escrow closing and recording and transfer charges.
• *Mortgage interest, the first year’s hazard insurance, and first year’s mortgage insurance (if required) are paid to the lender in advance.  
• *Reserves and pre-paids to be used by the lender to pay for hazard insurance, property taxes and possibly mortgage insurance are paid at this time.
• *Commissions and other fees include a variety of services, such as document preparation, notary services, handling the schedule, warranties and other items.

In the Event your Loan is Denied

Lenders have 30 days from the application date to explain in writing why you were denied a loan. If you were denied because of credit, you are entitled to a free copy of your credit report. If there are any errors, you may challenge them. Some lenders have a second level of review. You also have the right to apply at another institution. This does not guarantee success; either way, if your credit report shows erroneous information, you need to take action to correct the credit problem.