Mortgage Loan Documents

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 Mortgage Loan Documents

Lenders request a great deal of paperwork from applicants to support their mortgage applications. They require documentation that proves such things as how much money an applicant earns and how much outstanding debt they have.

The exact documents that mortgage lenders require when a person applies for a mortgage loan depends on their situation, e.g., the kinds of bank and retirement accounts they may have.

For example, someone who is self-employed may have to provide different forms, and possibly more of them, than someone who receives a monthly salary from a company. A person who is self-employed may have to provide a Year-to-date profit and loss statement and balance sheet for their business.

If a person is ready to dive into homeownership, they might be wondering what to do next. There is a lot to do before a person is ready to start shopping for new furniture. Knowing what to expect and what steps to take can make the homeownership process much easier and less confusing. Real estate brokers may play a role as a person usually needs a broker or real estate agent to help them in their search for the right property.

When a person actually enters into a mortgage loan agreement, they find that there are many more documents to review. Most of them are required by federal and state real estate laws. The mortgage loan documents a person can expect to see as part of a real estate transaction are as follows:

  • Good Faith Estimate: This is a statement of the estimated costs a person has to pay before they close the purchase of real property;
  • Housing and Urban Development (HUD) Special Info Booklet: This is a publication from the federal government that provides independent information about the home-buying process;
  • Truth in Lending Disclosure Statement (TILA): This is information about the price that a person pays to borrow money. Federal law requires that it be provided to mortgage loan borrowers;
  • Broker Agreement: This is a contract about the terms of finding a loan with a broker;
  • Loan Approval/Commitment: This is the contract that comprises the loan agreement itself;
  • Settlement Statement (also referred to as “HUD-1”): This is a list of all closing costs and loan disbursements.

In addition, in order to qualify for a mortgage loan, an applicant must submit quite a bit of documentation to a prospective mortgage lender to verify information about their financial status. Some of the kinds of documents that a person can expect to have to produce are as follows:

  • Tax returns: As noted above, mortgage lenders want tax returns to get the full and accurate story about a person’s financial situation. A person may have to sign Form 4506-T, which allows a lender to get a copy of their tax returns from the federal Internal Revenue Service (IRS).
    • Lenders typically want to look at two years’ worth of tax returns to make sure a person’s annual income is consistent with the earnings that the person reports. They also want to know that the person’s income is stable and does not fluctuate from year to year;
  • Proof of income: Lenders may ask to see a person’s pay stubs from the past month or more so they have a clear view of the person’s current earnings. A mortgage lender may also ask to see a person’s W-2.
    • A person may be self-employed or have other sources of income, such as child support payments. If so, they may be required to show their lender proof of this income through IRS 1099 forms, direct deposits, bank statements, or other means;
  • Proof of Accounts: A lender usually also wants to see bank statements and statements of other accounts that a person may have, e.g., 401K accounts, annuities, and other kinds of investment accounts. Again, a lender has to verify a person’s wealth.
    • Specifically, today, most mortgage lenders require a down payment of 20% of the purchase price of a property. At the very least, the lender wants to see proof of the fact that a borrower is in possession of this amount and that it is available to fund a down payment.

A person may have to produce copies of these documents more than once. If a person’s search for the right property lasts for more than six months, a lender may request updated copies of these documents.

When Will I Receive Each of These Documents?

A person generally receives their real estate loan documents within the following timeframes:

  • Good Faith Estimate: Within three business days of filing a loan application;
  • HUD Special Info Booklet: Within three business days of filing a loan application;
  • Truth in Lending Disclosure Statement: If you are seeking a purchase money loan, it must be done within three business days of filing a loan application. Most lenders provide the statement for a refinancing or home equity loan when a person first applies, but the requirement is any time before closing;
  • Broker Agreement: Immediately upon hiring a broker. If you are not using a broker, you will not receive or need this document;
  • Loan Approval/Commitment: Some reasonable time before signing final loan documents, but a person may want to ask for this as soon as possible. Or they can get a pre-approval commitment;
  • Settlement Statement: At loan closing, but a person should ask to review it one business day before closing.

How Do I Know How Much to Borrow?

A person needs to borrow as much as they can comfortably repay monthly for the life of the loan. Before borrowing money for a mortgage, a person wants to analyze how much they can afford in monthly payments. Then, they need to ask their mortgage lender how much they can afford to borrow. They should never agree to take out a loan unless they know exactly how much it is going to cost and how they are going to make payments.

Another thing to think about is how one spouse would pay the mortgage if the other spouse were to lose their income because of disability or firing. They might want a mortgage payment they can afford on one income only. Or they might want to make other arrangements, e.g., mortgage insurance.

In today’s housing market, a person should get pre-qualified for a mortgage loan before they start looking for a home. Then, they know the value of the property they can afford to buy. They are more attractive as buyers to prospective sellers if they have already qualified for a mortgage loan. This gives them an advantage over other buyers when they make an offer to buy a property.

In order to get disinterested advice, the federal Department of Housing and Urban Development (HUD) offers independent advice, often at no cost or low cost to the person who receives the advice. Throughout the U.S., HUD housing counselors can give a person advice about buying a home, including how to know how much a person can and should borrow.

These counselors also offer advice about renting, mortgage default, foreclosures, and credit issues. A person can go to this website, https://www.consumerfinance.gov/find-a-housing-counselor/ to find a HUD housing counselor and other HUD-approve counseling agencies. These counselors and agencies may be able to help a person figure out how much they can realistically afford to borrow for the purchase of a home.

A person’s state government may also offer helpful information. A person might contact their state’s attorney general or office of consumer protection.

Do I Need an Attorney to Review My Mortgage Loan Documents?

A mortgage lawyer is another person who can give you advice that is independent of mortgage lenders. Your lawyer serves your interests exclusively. LegalMatch.com can connect you to a mortgage lawyer who can help you understand the process of applying for a mortgage loan. They can also help you find the right house and finally close on the loan agreement and the purchase of the house.

Buying a house may be one of the most important financial decisions you ever make. You want to have the advice of a mortgage lawyer to help you through the process.

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