This review of the Residential Loan Application addresses your assets and liabilities. Quite simply what do you own and what do you owe.
Liabilities
For the most part this information will be populated with data gathered from your credit report. I find that many are very cautious about having their credit report pulled. This is primarily driven by a concern that credit inquiries will reduce your credit score.
I’m not going to go very deep, in this post, about the credit report, because this subject will be best addressed by separate postings in greater detail. However, let me inform you that the credit scoring models have been revised, for several years now, as it pertains to credit inquiries. If you are shopping for a mortgage all credit inquiries pulled by various home loan providers within a 14 day period will be treated as just one credit inquiry.
Today, depending on the type of loan that is most suitable for you, your credit score will determine the interest rate and fees your mortgage provider will be able to offer you. A credit score will need to be obtained to give you an accurate rate quote and/or to determine loan program suitability.
You will need to grant permission for your home loan lender to pull your credit report. What you do not want to do is go out and seek credit from other types of credit providers while you are shopping for a home loan. Do not seek credit for an automobile or credit cards while you are trying to obtain residential financing, these inquiries will affect your score.
You will want to review the credit report with your lender to determine accuracy. Assuming the information is accurate and complete the credit report will provide the necessary information. Your creditors, the type of credit issued, outstanding balances, and required monthly payments and payment history will all be listed.
This is all I’m going to say about the credit report, at this time. Look for additional postings regarding the credit report.
Assets
The assets your lender is going to be mostly focusing on are liquid assets. Savings, checking, money market accounts, mutual funds, investment accounts, 401k, 403b. etc are all of interest to you home loan lender.
As a general rule, your lender will be requesting statements for all of these accounts covering a two month period. If a particular account provides a monthly statement then you will need to provide the most recent two months. An account that only provides statements quarterly, then the most recent statement will suffice.
Gather all of your statements in advance of your application interview. Your loan officer will be recording the type of account, the ending balance, name of institution and account numbers for all of these accounts. Make sure you provide all pages. If your account statement says 1 or 7 pages, then bring all seven pages even if the page is blank.
As your file proceeds through underwriting the account statements will be reviewed in detail. An underwriter will be looking for unusual deposits. You will be asked to explain any large deposits. The underwriter is trying to determine if any of the money is borrowed, or from gifts or the sale of assets. If you have funds that have been deposited such as just described, you will be asked to provide supporting proof for the origin of those funds.
Notices of insufficient funds in an account will require explanation. Common sense should tell you this is not a good sign.
Loan program guidelines differ on the treatment of the source of funds available. As we’ve stated previously in this series, share everything with your loan officer. This information may be critical for the loan program recommendation your home loan officer will provide.
The residential loan application also contains areas to record asset information for cash value on life insurance policies, net worth of businesses owned automobiles and other assets. The schedule of real estate owned will be considered in a later series.
The reason the focus will be on liquid assets is that this is where your funds for down payment, buyer paid closing costs and reserves will be verified.
The better prepared you are at the beginning of the application process the more reliable and smoothly the process will be.
Please feel free to use the comment section for your questions and observations. Realtors and lenders as always your comments are welcome.
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Jay Williams
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