| APPLYING FOR A HOME LOAN
Q. How do I apply for a loan?
A. Obtaining a loan requires a lot of paperwork and sometimes
a lot of fortitude. The savings and loan scandals and the large number
of foreclosures in recent years have forced lenders to take a much more
critical look at their lending practices. While you won't be asked for
your blood type, it's a good bet that you will be asked about everything
in your financial history. Loan applications
vary, but most require the following information:
• Employment history, salary history, and proof of employment. This
may require you to obtain
a letter from your employer as well as recent wage stubs. You may be asked
for copies of your
federal tax returns for recent years or copies of your W-2 statements.
While there is no law that requires you to submit this information, the
lender has the right to turn down your request for a loan if you refuse
to supply pertinent information. If you are using other income to qualify
for the loan, such as income from property, child support, or income from
investments, you will
need to provide proof of these as well.
• Credit history. This includes all the account numbers of all credit
cards that you currently have.
You may be asked to submit year-end statements that reveal how much interest
was paid on
these cards during the preceding year.
• Outstanding debts. These include automobile loans, alimony, child
support payments, creditcard debt, etc.
• Assets. These include the value of any items you own, such as
automobiles, rental property,
stocks, bonds, cash, savings accounts, IRAs, retirement accounts, mutual
funds, etc.
• Source of your down payment. The lender will want to make sure
that you are not borrowing
money to make your down payment. (If you are borrowing money and will
be making interest
payments, this will be taken into consideration.) If you are receiving
a gift from relatives for a
down payment, the lender will expect proof that the gift will be forthcoming.
Q. How long does it take to get a home loan application approved?
A. When you apply for the loan, ask the lender how long the approval
process is expected to take.
It can take anywhere from twenty-four hours to three months, depending
on a variety of factors. If you have included a mortgage-contingency clause
in your purchase contract, be sure to inform your lender when you apply
for the loan of the date the clause expires. Usually, your lender will
work with you to meet the deadline or alert you that approval will take
more time. At that point, you may be able to get an extension from the
seller on the contingency.
Once your loan is approved, the lender will provide you with a loan commitment,
which
agrees to lend a specific amount of money on specific terms. A copy of
this commitment can be
provided to the seller to assure him or her that your financing is in
place.
Q. What is the lender obligated to tell me about the loan?
A. Federal law requires that the lender reveal all costs of the
loan, including such items as
appraisal fees, escrow fees, fees for the lender's attorney, service charges,
and, of course, the
interest rate on the loan. The interest rate must be presented as the
annual percentage rate or APR.
This is calculated by including the interest to be paid along with other
fees, such as any points paid to originate the loan.
Under the terms of the federal Truth in Lending Act, lenders are required
to use the same
methods for computing the cost of credit and disclosing credit terms.
This requirement allows
borrowers to fairly compare the costs and terms of home loans. It is a
much more reliable method for comparing costs than the advertised rate
of the loan.
The federal Equal Credit Opportunity Act prohibits discrimination in any
aspect of a home
loan 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. If a lender rejects your loan application, you are entitled
to know the specific
reasons in writing.
Lenders are also prohibited from doing anything that discourages you from
obtaining
credit, including taking an excessively long time to process your application,
being unwilling to
discuss available types of loans, or failing to provide information required
to apply for a loan. If
you suspect that you are being discriminated against in applying for a
loan, a complaint can be
filed with the Office of Fair Housing and Equal Opportunity of the Department
of Housing and
Urban Development, Room 5204, Washington, D.C. 20410-2000, or online at
http://www.hud.gov/complaints.html. You also may file a complaint with
the Federal Reserve
Board of Governors or the District Reserve Bank serving your area. Check
the government pages of the telephone book for their addresses or file
directly with the Federal Reserve at
http://www.federalreserve.gov/pubs/complaints/. When making a complaint,
be sure to include
your name and address along with name and address of the person or financial
institution you are filing the complaint against, a short description
of the alleged violation, and the date of the alleged violation.
Q. What documents must I sign to secure the loan?
A. The borrower will sign many documents; however, two documents
are essential to completing the loan transaction. One is a promissory
note agreeing to repay the lender the money borrowed plus interest. This
promissory note is a legally enforceable contract. The borrower may be
responsible for repaying the note even if he or she later sells the home
to a buyer who assumes the mortgage. The second document is a mortgage,
or deed of trust, and gives the lender a security interest in the real
estate. Having a security interest in your home means the lender may enforce
repayment of the loan by selling the property. If you do not pay, you
could lose your home.
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