Mortgage Application Decision
Once you turn in your mortgage applications and submit all the documents listed on the Uniform Residential Loan Application, your mortgage lender will then make a decision on your application based on the property appraisal and a thorough review of your credit, employment, debt and asset information.
Alternatively, after a thorough review, your lender can also:
Request additional information, if needed.
Notify you by phone of the loan decision.
Send you a commitment letter when your loan is approved, indicating your loan type, the amount, and closing conditions.
Notify you of the decision to deny your loan application, the reasons and what you can do next.
Decisions you have to make during the application process
The Type of Mortgage you want
Your loan application asks you to specify the type of mortgage you want. It's advantageous to learn about the various types of mortgages available before applying for your loan – even before you start the house-hunting process. The type of mortgage you choose will directly affect how much house you can afford and the amount of your monthly mortgage payments.
If you bring a ratified sales contract to your loan application interview, it may specify the type of financing you want. Your contract to buy the house may depend on your ability to secure or receive a commitment for the type of loan you specify.
Tip: Even if you come to your loan interview without a specified type of loan in mind, it's important to do research beforehand and have some idea of which type of financing is best suited to your lifestyle and budget.
The Mortgage Amount
This is a decision you most likely will have made before the loan application. Your requested mortgage amount will be based on the purchase price of your new home and the amount of money you will be putting toward a down payment.
However, if you have been pre-qualified, remember that your pre-qualification letter from a lender is only a ballpark range of your buying power. The lender can approve you for the amount requested, or a lesser amount, or nothing at all, depending on other factors such as your credit, and the appraised value of the property. If your loan application reveals you as creditworthy, it is likely that your pre-qualification amount will be close to the actual amount of mortgage funds a lender will be willing to loan you.
Down Payment
Most lenders expect buyers to make a down payment of at least 5% of the value of the home. If you can afford to put more money toward a down payment, it will reduce the amount of your monthly mortgage payments. Some loan programs offer 3% down payments if you meet certain income standards. The Veterans Administration (VA) and the Rural Housing Service (RHS) offer no-down-payment loans.
The lender will want to know how much money you plan to put down and the source of those funds. Sources you may draw upon include savings, stocks and bonds, pension funds, real estate holdings, life insurance policies, mutual funds, and employee savings plans. You may also use a gift of money from a family member that need not be repaid. If you do this, you will need to present a letter to your lender that states the amount of the gift, is signed by the giver, and is notarized by a third party.
You are also now allowed to withdraw up to $10,000 from both traditional and Roth Individual Retirement Accounts (IRAs) with no early withdrawal penalty, if used toward buying your first home. Under some mortgage programs, such as Fannie Mae's Community Home Buyer's Program® with the 3/2 Option®, part of your down payment may come from a grant from a nonprofit housing provider in your community.
Lock-in Interest Rate
The mortgage interest rates quoted to you the day you apply for your mortgage may change by the time you actually close on your home. That's why many lenders offer a rate "lock-in," which guarantees you a specified interest rate, provided the loan is closed within a set period of time.
When considering this option, ask the lender:
Can the rate be locked in at the time of application or only at loan approval
How long the lock-in remains in effect
Whether there is a charge for locking in the rate
If you can also lock in points
You will need to let the lender know if you want to accept the interest rate available on the day of your loan application or let the rate float until you go to closing. If your lock-in period expires before you go to closing, your lender is not obligated to give you the same interest rate you had locked in earlier.
Settlement Date
In your sales contract, you specify a time frame in which you wish to close on your new home (usually 30, 45, or 60 days from the time you have a ratified sales contract). If you have a limited time frame, ask your lender about express services, which may allow for less documentation and alternative means to verify information you've furnished on your application.
Tip: Tell your loan officer the approximate date you would like to close your loan, so that your loan processing will coincide with this date.
How lender make mortgage application decision
As you approach your lender, your ability to obtain a loan to purchase a home is based on a number of factors. Most lenders typically make lending decisions based on these three key ratios:
Loan-to-value ratio (LTV) - Loan-to-value ratio (LTV) represents the ratio of the loan amount to the value of the home. Lenders ideally want to see an 80% LTV, meaning a 20% down payment is preferred.
Housing Ratio - Housing Ratio represents the percentage of your total income that goes towards housing expenses.
Debt-to-Income Ratio - Debt-to-Income Ratio represents your total debt payments, plus housing expenses as a percentage of your total income. Lenders will typically look at any of these ratios as constraints, meaning once any of these ratio limits is reached, the amount of the loan will be capped.
