So, you’ve decided to take the plunge — you’re finally going to own the log or timber home you’ve been longing for. For most, this decision comes with an awareness that they’ll need financing to get the transaction underway and see it through to completion, and that means applying for a loan.
The phrase “loan application” is one that can cause shivers of dread and concern. After all, most folks don’t fill out applications for thousands of dollars every day, and they quickly find themselves outside their comfort zones when confronted with this unknown and important task. If you can identify with this panicked scenario, fear not. Take a deep breath and approach the loan application step by step. We’ll walk you through the basics.
Step 1: Personal Information
Like most forms, the loan application begins with your personal info, such as name, current address, phone number, Social Security number and other tidbits, such as the length of time at your current address, previous addresses for at least two years and even the highest level of education you’ve completed. In the case of a couple, the application includes the same information for co-applicants. Therefore, be prepared with these basics and do a little information gathering beforehand, especially if you can’t immediately recall every address where you have resided for the past several years.
Step 2: Home Information
Another section of the loan application will relate directly to the real estate you are buying. If an existing house or home site is being purchased, you’ll be asked for such information as the abbreviated legal description, the sale price, the year the structure was built (if applicable) and other information. Often, these can be obtained directly from the sales contract, so have it handy. If the application is for the construction of a new home, answer the questions that apply, such as the year the building site was acquired and the price paid.
Step 3: Underwriting
From there, the loan application involves the disclosure of information relevant to credit underwriting. These questions include the name of your employer (and any other employers during the past two years), length of time with the company, position, income from primary and secondary sources and contact information for the employer so that the bank or other lender may verify that the information is accurate. A word about verification: It’s necessary for underwriters to verify income and employment information in order make mortgages loans “investment grade,” that is, sellable on the mortgage secondary market. Don’t take it personally; it’s part of the process.
Step 4: Assets and Debts
Further along in the application, those seeking credit are asked to disclose their assets and liabilities. The form itself includes a basic personal financial statement. Information such as cash on hand, cash in banks or other financial institutions, values of investment accounts, retirement accounts, automobiles, real estate, personal property and other assets will need to be listed.
The same goes for debts/liabilities. What do you owe, and who do you pay? Total debt amounts are requested, along with required monthly payments. Just like before, a little information gathering ahead of time will make it much easier to complete this area of the application.
Lenders utilize the asset/liability information to calculate a debt-to-income ratio, a primary component that demonstrates the applicant’s ability to repay the loan. Incidentally, the lender will obtain a credit report and match its content against the completed loan application. Any omitted debts or balances that are significantly higher or lower will generate a request for the applicant to verify. Then, adjustments are made to the necessary debt-to-income calculations. (Don’t worry if you’re asked to clarify a payment amount or some balance. It happens all the time!)
Loan applications also require answers to a series of yes/no questions. These include but are not limited to: Are you a U.S. citizen? Is any part of the down payment borrowed? Have you declared bankruptcy, tendered a deed in lieu of foreclosure or had property foreclosed on in the last seven years? Check the boxes that apply.
Still feel a little uncertain about the process? Good news: There are knowledgeable, responsible loan professionals who understand that while this process is part of their everyday jobs, it’s extraordinary for their clients who may complete a loan application for home financing only once or twice in their lives. Let your mortgage loan professional help you along the way and don’t feel intimidated by the look of a crowded form. It’s a necessary part of the financing process, and in the end, the time and effort will be a worthwhile step to achieving your ultimate log or timber frame goal.
Adam Headley is a writer and career banker with more than 30 years of experience in finance and lending. He has written extensively on the varied aspects of building, purchasing and owning a log or timber home.