2 Minute Loan Application
Understanding the Process and
Your Right to Fair
Lending
"Just Right!"
You’ve been looking at houses for months and months, and you have
finally found it--the house that’s just right. Now, you’re anxious to buy your
new home, move in, and get settled. But you still have an important task ahead
of you—getting a mortgage loan. To view my recommendation -- Click Here.
Where to
Shop and What to Look For
Once you have found the
home of your choice, you may think that your shopping days are over. Actually,
only the first phase has been completed. Next comes finding a mortgage and
payment terms that fit your budget. Where you shop and what you look for are
important.
You might start by looking
for a mortgage at the bank where you have your checking or savings account. But
don't limit yourself. A wide variety of institutions make home mortgage loans,
including savings and loan associations, commercial banks, mutual savings banks,
and mortgage companies. The mortgages these institutions offer will have varying
features. One way to find the creditor with the most attractively priced loan is
to look in your local newspaper; check to see if it publishes a shoppers guide
to mortgage credit. These shoppers guides are available in many localities and
can be used to identify the lenders with low rates. But, basically, the way to
find the loan with the most attractive terms is to shop around. Probably the
best way to find the right lender is to ask your Realtor. To view my recommendation -- Click Here.
You should have in mind
some of the things to look for in a mortgage loan. For example, what types of
loans are available from a given institution? Does the lender make privately or
federally insured or guaranteed loans? Some lenders offer mortgage loans backed
by a federal agency such as the Federal Housing Administration (FHA loans) or
the Department of Veterans Affairs (VA loans). Loans that are not
government-insured are called conventional mortgages. Insured mortgages may be
more attractive than conventional mortgages in some ways--such as lower down
payment requirements. But they may be more restrictive in other ways; for
example, they may be available only for certain kinds of homes, or for
properties whose value is below a specified price.
Other factors important to
your mortgage decision are the length of the loan and the down payment required
by the lender. The longer the term and the larger the down payment, the smaller
your monthly payments will be. The interest rate is important too, and in some
cases the amount of the down-payment will influence the interest rate that you
pay (the larger the down payment, the lower the interest rate). In addition,
mortgage loans may have interest rates that will stay fixed for the life of the
loan (fixed-rate mortgages), that may change (adjustable-rate mortgages, or
ARMs), or that represent a combination of fixed and variable rates (convertible
mortgages). The initial rate of an ARM is generally lower than the rate
available on a fixed-rate mortgage; but remember, the rate may change during the
lifetime of the loan. Don't hesitate to ask the lender how one loan differs from
another, how the different features of the loan will affect the mortgage, or
whether your chances to qualify would improve if you made a higher down payment.
When you're shopping
around, you will find that some home mortgage lenders have special programs to
assist veterans and low-income or first-time homebuyers. Ask the lender if such
programs are available.
The
Mortgage Application Process
The mortgage application process requires
considerable paperwork. First there is the application form, which asks for
detailed information about you, your employment record, the house you want to
purchase, etc. The lender will need documentation pertaining to your personal
finances--your earnings, your monthly expenses, and your debts--to help gauge
your willingness and ability to repay the mortgage.
Lenders also will examine
your file at the credit bureau to learn if you pay your bills on time. A lender
may reject your application if the report shows that you have a poor credit
history. Thus, you may want to make sure your credit file is accurate before you
apply for your mortgage. You have a right to know what information is contained
in your credit report and to have someone from the credit bureau help you
understand what the report says. The names of credit bureaus can be found in the
phone book.
To figure the mortgage
payment, the lender will begin by asking how much you want to borrow. The
maximum loan amount will be determined by the value of the property and your
personal financial condition. To estimate the value of the property, the lender
will ask a real estate appraiser to give an opinion about its value. The
appraiser's opinion can be an important factor in determining whether you
qualify for the size of mortgage you want. Lenders usually will lend the
borrower up to a certain percentage of the appraised value of the property, such
as 80 or 90 percent, and will expect a down payment making up the difference. If
the appraisal is below the asking price of the home, the down payment you
planned to make and the amount the lender is willing to lend you may not be
enough to cover the purchase price. In that case, the lender may suggest a
larger down payment to make up the difference between the price of the house and
its appraised value.
When looking at your
projected mortgage payment and existing debt, some lenders might use ratios such
as "28 and 36" to determine whether you qualify for the loan. These are commonly
used ratios. In the case of "28 and 36," the 28 refers to the percentage of your
gross income (before taxes) that may be spent on housing expenses, including
principal and interest on the mortgage, real estate taxes, and insurance. The 36
refers to the income that may be spent for payments on all your debts (including
the mortgage): the monthly payments on your outstanding debts, when added to the
monthly housing expenses, may not exceed 36 percent of your gross income. When
you talk to a lender, find out what ratios will be used to evaluate your
application.
Be prepared to provide
certain documentation about your income (W2s for prior years and year-to-date
pay stubs), current debts (account number, outstanding balance, and creditor's
address for each), and the purchase contract for the home you want to buy. When
you file your application, ask the lender how long the approval process will
take. The time may vary depending on the complexity of your mortgage, current
market conditions, and whether you have to provide additional information. It’s
common for a decision to be made within 30 days after the lender receives all
the necessary information. Applications for FHA or VA loans may take
longer.
If Your Loan Is Denied
If your application is
turned down, federal law requires the lender to tell you, in writing, the
specific reasons for the denial. Make sure you understand the reasons given—you
may be able to find answers or alternatives that will satisfy the institution’s
lending standards. Even if that doesn’t happen, understanding fully why the loan
was denied may improve your chances with the next lender you visit. Factors that
may affect the loan decision include:
Down Payment
Is your proposed down payment
sufficient? If not, perhaps the lender offers other types of mortgages with
lower down-payment requirements.
Appraisal
Is the size of the mortgage you
need too high, given the property’s appraised value? If similar houses in the
neighborhood have sold at prices comparable to yours, maybe the appraiser
undervalued the property. Suggest that the lender re-examine the appraisal. You
also have the right to receive a copy of the appraisal if you have paid for it.
Credit history
Is the lender
doubtful—because of your level of debt or credit history—about your ability to
make the monthly payment? Ask how your debt ratios compare to the lender’s
standards. If there were special circumstances surrounding old credit problems,
ask for a chance to explain.
Understanding Your Rights to Fair Lending
Federal law protects every homebuyer looking for a
mortgage loan against discrimination on the basis of race, color, national
origin, religion, sex, marital status, age, receipt of public assistance funds,
familial status (having children under the age of 18), handicap, or exercising
your rights under other consumer credit protection laws. Lenders may not take
any of these factors into account in their dealings with you.
For instance, lenders may
not discourage you because of your race or national origin from applying for a
mortgage loan. Whatever your color, they must offer you the same credit terms as
other applicants with similar loan requests. They may not treat your application
differently because of your sex or marital status or familial status. In short,
they are barred from taking into account any of the factors listed here in their
dealings with applicants or with potential applicants. They should:
-
Willingly give you an
application and other information you need on how to apply for a loan
-
Willingly discuss with you
the various mortgage loans they offer and give you an idea whether you can
qualify for them
-
Diligently act to make a
decision--without undue delay--once you provide all the information asked for
(including, for example, written evidence of how much you make or how much you
have in savings), and once they receive other paperwork required for processing
the application (such as a property appraisal)
-
Not be influenced by the
racial or ethnic composition of the neighborhood where the home you want to buy
is located.
If you apply for a mortgage
and are turned down, remember that not all institutions have the same lending
standards. Shop around for another lender. But if the way you were treated
suggests the possibility of unlawful discrimination, you might talk to:
Private fair housing groups
Often these
groups can walk you through the mortgage process. They can also help you
understand whether your experience suggests that the lender is discriminating
unlawfully, and can help you decide whether to file a complaint.
Human rights agencies
These are government
agencies set up by a city, county, or state government to deal with
discrimination.
Attorneys
They can advise you whether the
treatment you received gives you legal grounds for bringing a lawsuit against
the lender. They can tell you about monetary damages and other types of relief
available to individuals who can prove that illegal discrimination occurred.
Federal or state enforcement agencies
They
can check the activities of mortgage lenders to make sure they complied with the
laws against lending discrimination. When you write, include your name and
address; name and address of the lending institution you are complaining about;
address of the house involved; and a short description and the date of the
alleged violation.
The
Fair Housing Act
Prohibits discrimination in housing sales or loans on the
basis of race, religion, color, national origin, sex, familial status (having
children under the age of 18), or handicap.
The
Equal Credit Opportunity Act
Prohibits discrimination in
any aspect of a credit transaction on the basis of race, religion, age, color,
national origin, receipt of public assistance funds, sex, marital status, or the
exercise of any right under the Consumer Credit Protection Act