The mortgage application is the instrument your lender uses to help determine whether or not to lend you the money you need to buy the home you want. It’s as simple and as important as that. Although the lender can help you fill out the application, it’s up to you to provide the information and documentation that goes into it. 

The process will go much smoother if you have some familiarity with the application, have already gathered the pertinent documents necessary to complete it, and have double checked facts and dates before you meet with the lender. This Mortgage Application Guide gives a brief description of each section of the application. It explains what information is needed to complete it, what lenders are looking for, and what raises red flags for them. 

You can download a blank Fannie Mae Form 1003, which is the industry standard application, here.

Section I. Type of and Terms of Loan. Your lender will probably be the one to fill in this section depending on the information you provide, the home you are interested in, and your credit rating. It describes the particulars of the loan you will receive like what interest rate you will pay, whether it will be a fixed or adjustable rate, the kind of loan you are getting, and the length of the loan.

Section II. Property Information and Purpose of Loan. This section identifies the property you are purchasing and whose name will be on the title. The simplest transactions are purchases of single family homes as primary residences. Purchasing a duplex or condominium, vacation property, or property to be used as a rental complicates the application.

You will identify the source of your down payment here. It may be cash, a gift, a grant, or a first time home buyer assistance program. Down payments that come from savings, the sale of an existing home, or are 20% of the purchase price help make the process go smoothly. A vague description of where the down payment is coming from is a red flag to a lender.

If the purpose of the loan is the purchase of a home or a refinance without taking cash, the process goes more smoothly. If you are refinancing and want cash out at closing, things get more complicated.

Section III. Borrower Information. This section should be fairly self-explanatory. You fill in the blanks completely for yourself and a co-borrower if there is one. You want to double check to make sure your social security numbers are complete and correct.

Section IV. Employment Information. You can expect the lender to call to verify this section with your employers so it’s very important to be precise. Lenders are looking for at least 2 years of employment at the same company or the same type of work. Be sure to fill in exactly how long you have worked with your present employer. Don’t give an estimation. 

Section V. Monthly Income and Combined Housing Expense Information. The left side of this section is where you provide income and other asset information for yourself and any co-borrower. On the right side you must detail your combined monthly expenses. Lenders like to see monthly rent or a previous mortgage that is in line with your new loan. You will probably be required to sign an IRS Form 4506-T. This gives the lender authorization to request copies of your tax returns from the IRS.

The application gets more complicated for those who are self-employed or are contract workers. If your income varies from month to month you will have to provide details. A complication self-employed borrowers face is the amount of time it can take for the lender to get the last year’s tax returns from the IRS. If you’re filling out an application at the first of the year, it will probably take a month to a month and a half to get verification of the previous year’s taxes.

Section VI. Assets and Liabilities. Assets are things you own that have value. For the purposes of the application assets refer to bank and savings accounts, retirement accounts, stocks and other investments. You list these on the left hand side of this section. Retirement accounts are marked down about 60% because of market volatility and the interest and penalties incurred if you make an early withdrawal.

Liabilities are the things you owe. You can pull these from your credit report. In addition to your car loan and credit card debt you must include any child support and alimony responsibilities. If you intend to keep your current home and use it as a rental, you will need to attach a Schedule of Real Estate Owned form to the application.

Lenders want to see an income to debt ratio of 36% or less. You won’t qualify for some types of loans with anything higher. They also look at any recent major purchases that you have made, like a vehicle. If you need a new car, it’s a good idea to wait to buy one until after you’ve closed on your new house.

Lenders like to see that you have enough money in your bank accounts to make at least two mortgage payments after closing. It raises concerns if making your down payment and paying closing costs comes close to wiping out the money you have in the bank.

Section VII. Details of Transaction. You need to look over this section carefully and ask the lender any questions you have about it. You won’t be able to fill it out though. This is a section primarily for the lender.

Section VIII. Declarations. This is the part where you have to declare any financial missteps you have made such as bankruptcy or foreclosure. Attach a continuation sheet as necessary. It’s important to be completely honest with your lender. A lot of issues can be handled if the lender has the information at the start of the process. 

If the issues disqualify you for a loan at the present time, you might as well know it up front. The lender can tell you what you need to do in order to qualify for a loan in the future and how long it should take before you can reapply. 

Section IX. Acknowledgement and Agreement. Sign here after you have looked everything over and are satisfied with the information you’ve given.

Section X. Information for Government Monitoring Purposes. You are not required to complete this section, but are encouraged to do so. The purpose of this last section is for the federal government to monitor compliance with fair housing, equal credit opportunity, and home mortgage discrimination laws on the part of the lender.

Having issues that complicate the mortgage application doesn’t mean you’re out of luck. It only means you may be asked to provide more documents and answer more questions. The decision process may take longer. You might be required to accept a higher interest rate or incur more fees than someone with a less complicated application.

Fannie Mae instructions are included with the form, but they aren’t written in everyday English. You may have trouble deciphering them. If you still have questions about completing the application after going through this Mortgage Application Guide, don’t be concerned. We have an exclusive partnership with experts who will guide you through the process step by step.