You've decided on the type of mortgage you want and you're ready for the next step: loan application. You’ll probably fill out a lender’s application online, then talk with a loan officer by telephone. This is where the folder of financial information you’ve collected will come in handy.
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Once the lender has received your application, it will issue you a good faith estimate (GFE), which is mandated by the federal Real Estate Settlement Procedure Act (RESPA). Once you've obtained lenders' GFEs, you can compare their rates, closing costs and terms in an apples-to-apples format.
Check whether the quoted interest rate is guaranteed, and for how long. If you think that interest rates may rise while your application is being processed, ask for a "lock-in." Get it in writing. Some lenders may offer a lock with a float-down option, meaning that if the rate goes down by a certain amount before you a close, you will get the lower rate.
Closing costs vary depending on where you live -- from 2% to 3% of a home’s purchase price up to 5% to 6% in high-tax areas. They include a plethora of charges, including any discount points that you’ve agreed to pay to lower your interest rate; an origination fee of 1% to 1.5% of the loan amount; costs for an appraisal, survey, title search, title insurance, recording of deeds and mortgages, transfer tax and attorney's fees; and an estimated calculation of monthly costs for property taxes and hazard insurance if your lender will collect the funds and pay them from an escrow account.
Be prepared to give the name and phone number of someone who can verify financial information about you -- most likely, your employer's personnel office. If you have substantial income from investments, you'll be asked to substantiate this through account statements and possibly an accountant, stockbroker, trust officer or similar source. If you are self-employed or if 25% or more of your income is from commissions or bonuses, you must provide two years of tax returns to offer proof of established income. Self-employed people may also need a profit-and-loss statement so the lender can assess your company’s strength.
To begin processing of your application the lender will require a fee of $100 to $400 that covers the cost of pulling your credit report and obtaining an appraisal of the property's market value. The fees are non-refundable and will be credited against your closing costs.