WHAT ARE THE TEN SECTIONS OF THE 1003?

There are ten sections to the 1003:

1. Type of Mortgage and Terms of Loan

2. Property Information and Purpose of Loan

3. Borrower Information

4. Employment Information

5. Monthly Income and Combined Housing Expense Information

6. Assets and Liabilities

7. Details of Transaction

8. Declarations

9. Acknowledgement and Agreement

10. Information for Government Monitoring Purposes

1. Type of Mortgage and Terms of Loan

The very first thing the 1003 asks you is what type of mortgage you’re applying for, be it a conventional, Federal Housing Administration (FHA), Veterans Administration (VA), or other loan. Many consumers won’t know which type they need or if they’re eligible for one or more of these types. That’s okay. If you haven’t decided, just put in the loan type you’re more inclined to choose. If you’re VA eligible, there will be a tad more paperwork for you and the lender to complete with “VA” stamped all over it. There are also two boxes marked “Agency Case Number” and “Lender Case Number.” These boxes are reserved for FHA use and will be filled in by the lender later on. It’s really of no significance to you.

This section also has a place for you to choose a fixed rate, an adjustable rate, the term of the loan (how many months or years), the requested loan amount, and, of course, “other.” This part of the 1003, like the other sections, can be changed throughout the application process, so if you check that you want a fixed rate and change your mind later, you won’t need to complete an entire new application. Just make the changes needed.

2. Property Information and Purpose of Loan

This is the address of the property you want to buy. You can leave it blank if you haven’t found a house yet, or you can put in something like “123 Main Street” just to get an address into the system. This section will also ask you if the property is a single-family house or a multiunit property, like a duplex.

There is an area for the legal description of the property. The borrower or lender typically doesn’t know this information early on, so you’ll probably leave this box blank. A legal description reads something like, “Lot II, Section A, 123 Main Subdivision.” Your lender will get this information from the agent, from the title, or from an attorney involved in the transaction. Some AUS programs require a property address to get a preapproval; if this is your case, use a simple “123 Main Street, Anywhere USA.”

This section also asks if your request is for a refinance loan, a purchase loan, or even a construction loan. Will you live in the property or is it for a rental? Either way, you must explain in this section if the property you’re buying is going to be your primary residence, a vacation or second home, or an investment property.

If you are making an application for a construction loan, there are sections that itemize the land cost and the construction cost, along with final anticipated value. For a refinance, it will ask you when you bought the property, what you paid for it, what existing liens there may be, what improvements you’ve made, and how much they cost.

The final part of this section asks how you’re going to hold title, be it individually or along with someone else, and if you’re going to own the property “fee simple” (which is outright ownership of both the land and the home) or “leasehold” (where you may own the home but the land is being leased).

How can you buy a home on someone else’s land? Leaseholds can work when the lease period is for an extended time, say, 99 years or so. This sounds odd, but it is not as uncommon as you think in areas where Native American tribes may own land that has been developed with houses, shopping malls, and the like. More than likely this option will never be an issue for you.

3. Borrower Information

This section is about you. It gets into the “meat” of the application and identifies who you are by way of your legal name, your Social Security number, and where you live. This is the most personal part of the application since it’s used to check your credit report, address, age, and phone number.

You may be wondering, Who cares how old you are? People have to reach a certain age before they can execute a sales contract. Age information can also help identify a borrower. Someone who is 18 years old shouldn’t have credit lines on her credit report that are 20 years old, for example. Sometimes this question sounds like a loan approval question, but the fact is that it is illegal to discriminate in mortgage lending and it is illegal to discriminate based upon how old you are.

This section also asks how many years of school you’ve had. For the life of me, I’ve never understood why this question is part of a loan application and I’ve never been given any good reason. It seems to be a carryover from older loan applications when this information was used to predict future earnings. An underwriter might let the new law school graduate borrow a little more because of the likelihood that that person will have strong earnings potential. But is a person with a GED somehow less creditworthy than someone with a PhD and an MBA? Hardly. But this box is still there on the loan application, so you can fill in that information if you want to, but it really doesn’t matter one way or the other. It might mean something if you put in just 12 years of school but claim that you’re a doctor or a dentist. Then you will need to further explain how you accomplished such a feat. Otherwise, don’t worry about loans not being approved based upon the number of years you’ve gone to school.

The final section is reserved for the number of your dependents. This box really only applies to VA mortgages that calculate household and residual income numbers, but again it isn’t something that is used to approve or deny your loan request.

If you’ve lived at your current address for less than two years, you’ll also be asked to provide a previous address. But that’s really about it. No pint of blood or firstborn offspring required. Once completed, this section nails down exactly who you are and where you’ve lived.

4. Employment Information

Now that we know who you are, we want to make sure you have a job and see how long you’ve been working and whom you work for, or if you’re self-employed. This section asks for your employer’s name, address, and phone number. Lenders will contact your employer—either by telephone, by letter, or even by email (as long as the email address can be verified)—asking them to verify how long you’ve worked there, what your job description is, and how much money you make.

You’ll notice there are two separate boxes about your length of employment. One box asks for “Years on this job” and the other asks for “Years employed in this line of work/profession.” Lenders look for a minimum of two years in the workforce at the same job as a sign of job stability. They also like to see someone in the same line of work, for the very same reason. If you haven’t been at your current job for two years, don’t worry, as long as you’ve done the same or similar line of work somewhere else.

Have you been laid off because of an economic downturn? Document the dates and reasons for the time not worked. If you’ve been a store manager at your current job for six months, all you need to do is document your previous jobs for at least another 18 months to make up your two-year minimum. There’s another box for previous employers, asking for the same contact information along with how much money you made at your old jobs. Finally, you’ll be asked about your job title and the type of business you’re in and whether you’re self-employed.

5. Monthly Income and Combined Housing Expense Information

Easy enough. Now, how much money do you make and how much are you paying for housing (whether it’s rent, mortgage, or living payment-free)? Your income is divided into six sections plus the now-famous “other.” Here you enter your base salary, commissions or bonuses, income from investments or dividends, overtime earnings, and any rental income you might have from other real estate. Below this section there is an area for you to describe “other” income. This could be anything that’s verifiable, such as child support or alimony payments, note income, or lottery winnings.

Then there is another box for your current house payment or rent. Here you put your rent or mortgage payment, plus any monthly property tax, hazard insurance payment, homeowners association dues, or mortgage insurance payment.

6. Assets and Liabilities

This section covers your bank accounts, investment accounts, IRAs, or whatever other financial assets you might have. Don’t let this section intimidate you. Just because there’s a space for “Life Insurance Net Cash Value” or “Vested Interest in Retirement Fund” doesn’t mean that you have to have either of them to get a home loan. You don’t. You simply need enough money to close the deal.

The very first box describes your first asset involved in the transaction: your “earnest money” or deposit money that you gave along with your sales contract. If you gave $2,000 as earnest money, that’s the first money you’ve put into the deal. Lenders want to know how much you gave as earnest money and who has it. They’ll verify those funds as part of your down payment.

The next four sections are for your bank accounts—checking or savings—and for related account information, such as account numbers and current balances. It’s not necessary to complete every single box or to divulge every single account you might have. Typically lenders only care about having enough money to close your deal and less about what your IRA balance is. The only time other balances come into question is if the lender asks for them as a condition of loan approval. These extra funds are called “reserves.”

Reserves are best described as money left in various accounts after all the dust has settled, including money for your down payment and closing costs. Reserves can sometimes be a multiple of your new house payment, such as “six months’ worth of housing payments,” and they must be in accounts free and clear of your transaction. Reserves can also be used to beef up your application if you’re on the border of obtaining a loan approval. A lender who is a little squishy on a loan may want to see some other aspects of your financial picture before issuing an approval. Reserves are an important criterion for many loans, but it’s up to you to ask the lender if you in fact need to document absolutely everything in your financial portfolio or just enough to close the deal.

This section also asks for other real estate you might own, and there is even an area to list the type and value of your car. I’m serious. Again, this is a holdover from earlier loan applications, but if you leave this section blank, an underwriter might want to know how you get to work and back.

Finally, there’s the question of “other” assets. Historically, they might mean expensive artwork or jewelry, but this, too, is an unnecessary question, so don’t worry about leaving this box blank.

Next to the Assets is the Liabilities section, where you list your monthly bills. This section is only for items that might show up on your credit report, such as a car loan or credit card bill. It doesn’t include such items as your electricity or telephone bills. Don’t worry if you can’t remember the exact balances or minimum monthly payment required, just give your best estimate. Your lender will fill in the application with correct numbers taken from the credit bureau later on. If you owe child support or alimony, there’s a place for that information, too.

7. Details of Transaction

This is the most confusing piece of the application, so much so that most borrowers leave it blank for the lender or loan officer to fill in. In fact, most loan officers don’t fill it in and let their computer program do the work for them. This is an overview of your particular deal, showing the sales price of the home, your down payment amount (if any), your closing costs, and any earnest money held anywhere. It then shows how much money you’re supposed to bring to the closing table.

Note that this is just an overview and not the final word on loan amount and costs, etc. It’s simply a brief snapshot of the transaction. Believe me, you’ll get reams of paper on this topic in other documents.

8. Declarations

These are thirteen statements that you check “yes” or “no.” For example, “Are there any outstanding judgments against you?” and “Are you a party to a lawsuit?” and so on. Here you’ll also declare if you’ve been bankrupt or had a foreclosure in the past seven years.

Actually, there is no such thing as a seven-year requirement for bankruptcies and foreclosures for conventional or government loans anymore; this is another carryover from older application processes. Nowadays, bankruptcies and foreclosures generally affect loan applications only if they’re two to four years old.

9. Acknowledgement and Agreement

This is a long-winded, obviously lawyer-written section where you cross your heart and hope to die that what you put on your application is true, that you agree to have the home secured by a first mortgage or deed of trust, that you won’t use the property for illegal purposes, that you didn’t lie, and so on. You sign your loan application in this section and date it.

10. Information for Government Monitoring Purposes

This is an optional section that asks about your race, your national origin, and whether you are male or female. This information doesn’t make any difference on your loan approval and you don’t have to fill it out if you don’t want to. However, the government requires, through the Home Mortgage Disclosure Act, or HMDA (hum-duh), that when borrowers opt not to complete this information, then the loan officer meeting with the applicants must make a best guess as to “guy or girl” or “black, white, Pacific Islander,” or whatever. It’s one of the ways the federal government can monitor the approval rates for various classes and races of borrowers and see if your bank or lender is discriminating based upon race, color, or creed. After all, how does the government know such things if they’re not told? Or maybe a certain lender isn’t making loans where the community may need them most. For example, the Community Reinvestment Act (CRA) requires lenders to place a certain percentage of their mortgages in specific areas, as required by the federal government.

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