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Applying for a loan

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Once you have found a home (and the seller has accepted your offer) that fits your needs and your budget, it's time to apply for your loan.

If you have already selected your lender, get in touch with them and they can take your application. You can apply for a mortgage by filling out an application in person, and depending on your lender, may be able to start over the phone or online. You'll fill out an application, providing information on behalf of yourself and anyone else who is going to be listed as a co-borrower on the mortgage, like a spouse or partner. If you've already been preapproved, you may have filled out some of the application details by this point.

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What you'll need - To apply for a home mortgage you'll need to provide your lender with documentation to help verify your employment history, creditworthiness, and overall financial situation. If you are applying with someone else (called a co-borrower, such as your spouse), they will also need to provide the same documents.

Be prepared to provide the following:

  • W-2s (for the last 2 years)
  • Recent pay stubs (two most recent consecutive)
  • Bank statements for all financial accounts, including investments (for the last 2 months, all pages)
  • Signed personal and business tax returns (all pages and relevant schedules)
  • If self-employed, a copy of most recent quarterly or year-to-date profit/loss statement
  • A copy of the signed Purchase and Sales Agreement

Your lender may require more documents, depending on your circumstances and the type of mortgage for which you're applying. You can expect your lender to ask you details about your employment and financial history. With your permission, your lender will also run your credit report as part of the process.

Because a mortgage is such an important financial commitment, be sure to take your time and carefully fill out the application as completely and accurately as possible. Not disclosing credit problems up-front or holding back requested documents will only delay the process and potentially prevent approval of the mortgage, so it's to your benefit to fully disclose everything about your finances.

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Locking in your interest rate

 

Since interest rates fluctuate frequently, things can change between the day you apply for your loan and the day you close your loan. If you want to protect yourself against rising interest rates and ensure that the loan terms you used to build your budget are locked, you might consider locking in your rate with your lender when you fill out your loan application.

A rate lock, also known as a "rate commitment," is your lender's assurance that the interest rate and discount points are guaranteed until the rate lock expiration date. The lender will provide the terms of the rate lock to you in writing, including the agreed upon interest rate, the length of the lock, and any discount points you choose to pay.

Of course, if you believe that interest rates will decrease in the near future waiting to lock your rate may make sense to you. In the end, it's a personal choice when to lock your rate. The rate must be locked prior to the lender preparing your closing documents. Talk to your lender about the choice that best suits your needs and your preferences.

APR vs interest rate

When shopping for a mortgage or thinking about refinancing your mortgage, keep in mind that an advertised interest rate isn't the same as your loan's annual percentage rate (APR). What's the difference?

The interest rate refers to the cost of borrowing money and is expressed as a percentage

The APR, also expressed as a percentage, reflects the effective cost of your loan on a yearly basis. It takes into account fees and costs such as interest, mortgage insurance, most closing costs, discount points and origination fees. APR is an estimate and may change if there are any changes in loan amount, loan term or other criteria. Your monthly payment is not based on APR, it's based on the interest rate on your promissory note

Why the difference? The APR is intended to give you more information about what you're really getting. By making lender fees part of the equation you can better see the true cost of a loan and make a fair comparison.

Keep in mind that the APR is for comparison between lenders only. The interest rate quoted is the actual interest rate you would pay on the loan.

So evaluate carefully when you look at the rates lenders offer you. Compare one loan's APR against another loan's APR to get a fair comparison of total cost. And be sure to compare actual interest rates, too!

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