Thursday, May 24, 2018

Uniform Residential Loan Application 101

Nobody likes filling out applications, but when it comes to mortgages, there is an application form that is actually designed to make your life easier. At just over four pages long, the Uniform Residential Loan Application (URLA) is not exactly a walk on the beach, but its purpose is to make it easier for you to get approved for a loan, and at cost effective terms.

Before you even start shopping for a mortgage lender, you may want to learn a little about the URLA. An introduction to the form will give you a feel for what kind of information lenders are going to require from you when the time comes to apply for a loan.

What Is the Uniform Residential Loan Application?

The URLA was developed by two government-sponsored entities, Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac don’t make mortgage loans directly, but they purchase loans from mortgage lenders. By purchasing those loans, Fannie Mae and Freddie Mac make it possible for lenders to put money back into new loans. This is crucial for making mortgages widely available, and for keeping interest rates and other loan terms reasonable.

When lenders use the URLA, they know that they will have all the information necessary to make the loan eligible for purchase by Fannie Mae and Freddie Mac in the future. Fortunately, these two government-sponsored entities collaborated on creating the standardized form, so loans made with it can be eligible for purchase by either Fannie Mae or Freddie Mac. However, the form does go by different names at each institution. Fannie Mae refers to it as form 1003, while Freddie Mac refers to it as form 65. In any case, your lender should be able to provide you with the right form.

Why the Uniform Residential Loan Application?

Why is this form necessary? After all, Fannie Mae and Freddie Mac are not directly lending you money. Why can’t the lender you choose simply walk you through their own version of a loan application?

As mentioned above, the capital that Fannie Mae and Freddie Mac provide by purchasing loans from independent lenders is essential for making money available for new mortgages. The thing is, Fannie Mae and Freddie Mac purchase loans from thousands of different lenders. Imagine if each of them had its own version of an application. It would make it very cumbersome for a loan purchaser to gather and store the standard information they need to determine whether or not a loan is a good risk.

The standardized application also helps Fannie Mae and Freddie Mac comply with mortgage regulations, which were made much stricter following the housing crisis about a decade ago. The general idea is to gather information that will help squeeze out risky mortgages – and that helps make sure loans remain available to more qualified applicants.

What You Will Need to Get Through the Application

The URLA consists of eight major sections. To give you a sense of what filling out this application entails, the following is a walk through each of those sections:

  1. Type of Mortgage and Terms of Loan. This is a short section that briefly summarizes the characteristics of the loan. Those characteristics include whether it is a VA, FHA, USDA/Rural Housing Service, Conventional, or another type of loan. This section also specifies the length and interest rate of the loan, and whether that interest rate is fixed or adjustable.
  2. Property Information and Purpose of Loan. This section focuses on the characteristics of the property (i.e., address, how many units, etc.) and how the loan will be used with respect to that property (i.e., purchase, construction, or refinancing). This section also notes any existing financial claims on the property and the source of the down payment.
  3. Borrower Information. In this section, you would simply list your name, address, social security number, marital status, and number of dependents. You would also need to provide the same information for your co-borrower, if applicable.
  4. Employment Information. Here you would list the name, address, and phone number of your current employer. If you have multiple jobs or have been at your current employer for less than two years, you would also have to list information (including income) about any other jobs you have held in those two years.
  5. Monthly Income and Combined Housing Expense Information. The purpose of this section is to make a comparison between your income and the expenses you would face in connection with owning the property you are trying to purchase. For income, make sure you have some documentation on hand, such as a pay stub or a recent tax return. The expenses include both the monthly payments that would be associated with the mortgage and any payments that are directly associated with the property, such as taxes, insurance, and homeowner association dues.
  6. Assets and Liabilities. Get your bank and investment account statements ready, because you are going to need a lot of detail for this section. You will have to list the available funds and account information for every bank, investment, and insurance account you have. This section also requires a valuation of other major assets, such as your car, any current real estate, and business interests. On the liability side, you will need to provide details on any current loan you have outstanding, including lender name, account number, monthly payment amount, number of months remaining, and total balance remaining. Other liabilities you need to account for include alimony, child support, and job-related expenses.
  7. Details of Transaction. Your lender should be able to walk you through this once you have a specific property and loan in mind. These details include the purchase price and any other expenses associated with the property and closing costs, plus the mortgage insurance and other fees.
  8. Declarations. This section consists of a series of yes/no questions about your background. This includes any legal or financial troubles you have had in the past, your citizenship or residency status, and your home ownership history. Also, this section asks whether you intend to occupy this property as your primary residence. For lenders, there is an important distinction between loans on a primary residence and loans on other property, so if you own other property you need to have made a clear decision about which will be your primary residence.

Where to Get a Copy of the Application

Just about any mortgage lender should be able to provide you with a copy of the URLA, but if you want to get a jump on the process and see what to expect, you can get a copy of the form directly from Fannie Mae or Freddie Mac.

An application with so much financial detail can seem overwhelming at first glance. However, if you take the time to familiarize yourself with the URLA in advance and work through its eight sections step-by-step, you should find it less intimidating. Just think of each section of the URLA as one more step towards becoming a homeowner.