Illustration: Cristi Cash
Buying a House 5 min read

Dealing with a Lender

Investing is like life: nothing ventured, nothing gained. Most lenders require you to complete a mortgage application—a comprehensive financial statement.

The information you provide on your application determines whether you qualify for a loan and how much you can borrow. The key numbers are:

  • Your regular income
  • The value of what you own
  • Your expenses and debts

The application itself is fairly standard from lender to lender, usually because it meets Fannie Mae’s requirements.

What the Lender Requires

Besides the application, you’ll need to pay for:

  • A survey, or official surveyor’s drawing, of the property and the buildings on it.
  • An application fee and an origination fee to cover the costs of processing the application. This includes an appraisal of the house by the lender to make sure it’s worth the mortgage loan. Plan to spend at least $250 to apply, plus 1% of the mortgage amount.
  • If your down payment is less than 20%, the lender may require private mortgage insurance (PMI) to guarantee payment if you default on the loan.

The Commitment Letter

If one lender says no, try another one. All lenders use the same basic information, but they may evaluate it differently. Your real estate agent or a mortgage broker can help you find mortgage sources. You can also ask if the seller is willing to reduce the price or lend you a portion of the money required.

What the Application Asks

A mortgage application is the lender’s way of evaluating your credit-worthiness and determining whether to take the risk of lending you money. Although it can be an intimidating document, you’ll be ahead of the game if you keep good financial records. You’ll especially want a complete list of your investments, including money in your retirement plans.

Many experts suggest you can strengthen your application by channeling at least part of what you’re saving to buy a home into a portfolio of investments—including stocks, bonds and mutual funds. That approach can have the double advantage of boosting your net worth, while helping to build your down payment funds more quickly.

Details of purchase asks about how much you want to borrow, how much down payment, or cash part of the purchase price, you have, and where the rest of the money will come from. Borrowing a large amount from another source—even from your family—could disqualify you.

Monthly income is a key figure for lenders. It can include non-salary income, such as earnings on your investments or money you get from rentals, but you’ll have to prove the income is regular. You can also count alimony or related payments to establish your eligibility.

Job information focuses on regular employment so you’ll probably need verification from your employer. If you’re self-employed, you often have to provide more information, including income tax returns, credit reports and profit and loss statements for your ­business.

Monthly housing ­expenses show what you are spending now and what you expect to spend in the new house, including taxes, utilities and homeowners insurance.

Your credit history asks:

  • Whether you've declared bankruptcy,
  • Whether there are any liens or legal claims against your salary or property, and
  • If you have outstanding debts.

Net worth is the total value of what you have, or your assets, minus what you owe, or your liabilities. Assets include cash, bank accounts, investments and property. Liabilities include debts and loans, credit cards, leases, alimony and child support. Mortgage loans usually require the numbers as well as the location of accounts, loans and credit cards.

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