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Applying for a Mortgage

June 3, 2005

By: Jim Oosterman
Melrose Bank

Looking for a home to buy can be stressful, and applying for a mortgage, with all of its paperwork, can be especially intimidating. If you're on the road to homeownership, here is some important advice to help you navigate the mortgage process and avoid a bumpy ride along the way.

Getting Started
Once you've determined that you want to buy a home, there are some things you can do before you even go to a bank or other lender for a mortgage.

  • Get copies of your credit report from all three major credit bureaus and review them carefully. Errors can raise your rates or even stop you from getting a mortgage. Dispute discrepancies and have them corrected.
  • Don't apply for new credit cards or add other new debt.
  • Know how much money you're prepared to use as a down payment. Keep in mind that you also will need to have funds available for fees and closing costs.
  • You will need to show steady sources of income, so don't quit or change jobs right before applying for a mortgage.

Knowing how much mortgage you can get before you start house hunting is a good idea so you won't waste time looking at homes that you can't afford. Your potential lender can pre-approve you for a mortgage. The bank will check out your income and credit and give you a letter of commitment stating that you'll be given a mortgage up to a certain amount. You'll have more credibility as a buyer, since a seller can see in the letter that you're going to get the mortgage if he or she accepts your purchase offer.

The Paper Trail
The “Uniform Residential Loan Application” requires a lot of personal information such as your income, assets, liabilities, and a description of the property. You may need to pay an application fee that covers the lender's processing costs. Be sure to ask if the application fee is refundable.

Among the commonly required documentation you will have to provide:

  • Two most recent pay stubs
  • W-2s and tax returns for the last two years
  • Bank account(s) information and statements of other financial assets, such as IRAs, CDs, stocks, and bonds
  • Names and addresses of all creditors, along with the monthly payment and total balance for all debts outstanding
  • Name and address of current landlord

The next steps
As your mortgage application is processed and finalized, your lender is required by law to give you several documents. Within three business days of applying for the loan, the lender must inform you of the mortgage's annual percentage rate (APR). In addition, the lender is required to give you an itemized good-faith estimate of your closing costs. You'll sign authorizations that allow the lender to verify your income and bank accounts, and to obtain a copy of your credit report.

Your lender will get a property appraisal. The appraisal will determine the market value of your new home, which will be used as collateral for your loan. You'll typically be charged a fee for this service, which is considered part of your closing costs.

The rate and terms of your loan will be based on a down payment figure, typically 0 to 20 percent of the purchase price. If your down payment is less than 20 percent of the purchase price of the property, your loan will likely require private mortgage insurance (PMI). If you can put more money down, you will have a lower payment and you won't need to carry the added cost of PMI.

Your interest rate may fluctuate between the time you apply and closing. To prevent it from going up, talk to your lender about locking in the rate.

The Closing
The final step in the mortgage process is the closing meeting. This is where all the documentation is completed, up-front costs are paid, the necessary papers signed and you get the keys to your new home.

If you're turned down for a mortgage, ask why. By law, you will receive a written statement from the lender indicating the reason your loan was turned down. Common reasons include too much debt or credit that needs improvement.

The most important piece of advice: to find a lender you trust. Select the lender who will take the time to work with you and make your dream of homeownership a reality.

James Oosterman is the Vice President of Melrose Bank. He can be reached by telephone 781-665-2500, online at melrosebank.com or on Facebook at facebook.com/MelroseBank.


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