Understanding The Universial Loan Application
The Fannie Mae Form 1003, the Universal Loan Application. This form, known more commonly around the mortgage industry as simply a "1003" (ten-o-3), is perhaps one of the intimidating forms a home buyer can face. While much of this form is pretty self explanatory, many people do not fully understand how to fill it out properly. So let’s go through the universal loan application section by section.
First up is the legal agreement listed on the very top of page 1 of the Universal Loan Application
"This application is designed to be completed by the applicant(s) with the Lender’s assistance. Applicants should complete this form as "Borrower" or "Co-Borrower," as applicable. Co-Borrower information must also be provided when the income or assets of a person other than the Borrower (including the Borrower’s spouse) will be used as a basis for loan qualification or the income or assets of the Borrower’s spouse or other person who has community property rights pursuant to state law will not be used as a basis for loan qualification, but his or her liabilities must be considered because the spouse or other person has community property rights pursuant to applicable law and Borrower resides in a community property state, the security property is located in a community property state, or the Borrower is relying on other property located in a community property state as a basis for repayment of the loan.
If this is an application for joint credit, Borrower and Co-Borrower each agree that we intend to apply for joint credit (sign below)"
Long winded isn’t it. Let’s break this thing up so we can understand it.
"This application is designed to be completed by the applicant(s) with the Lender’s assistance"
This is just good advice. If you don’t understand the application then get help from someone who does. In the case of obtaining a mortgage, your loan officer is the logical choice.
"Applicants should complete this form as "Borrower" or "Co-Borrower," as applicable. Co-Borrower information must also be provided when the income or assets of a person other than the Borrower (including the Borrower’s spouse) will be used as a basis for loan qualification"
This is pretty straight forward. If you plan to use the income and assets of a co-borrower to qualify for a loan, then you have to input all of the co-borrower’s information in the loan application, just like you do the borrower’s information.
"the income or assets of the Borrower’s spouse or other person who has community property rights pursuant to state law will not be used as a basis for loan qualification, but his or her liabilities must be considered because the spouse or other person has community property rights pursuant to applicable law and Borrower resides in a community property state, the security property is located in a community property state, or the Borrower is relying on other property located in a community property state as a basis for repayment of the loan."
In a nutshell, this means that if you (as borrower) live in a state with community property laws and your spouse or partner has legal community property rights in your relationship, then you may have to disclose your spouse or partner’s debts and liabilities to the lender in consideration of your loan. If this is required by your state’s laws, then you would have to disclose the extra debts even if you are not using your spouse or partner’s income and assets to qualify for the loan. If you happen to live in a state where this would happen, then you have to include all of your spouse or partner’s information on the loan application, just the same as you would your information.
Now let’s go through the rest of the application, one section at a time, as they appear.
Section 1: Type of Mortgage and Terms of Loan
Mortgage Applied For: VA, FHA, Conventional, USDA/Rural Housing Service, or Other
Most home buyers will be applying for either a Conventional loan (traditional bank) or an FHA loan (through the Dept. of Housing and Urban Development). VA loans are for veterans applying through the Veterans Administration and USDA loans are can be used for large farms and rural properties.
Agency Case Number
Case Number assigned to your loan by HUD (if you using a FHA loan), the Veteran Administration for VA loans, or the USDA for their loans.
Lender Case Number
Case number assigned to your loan by your traditional bank.
Loan Amount
This is for the total loan amount that you are applying for. If you are doing a refinance and want to have your closing costs added to the loan, then the number entered here needs to include those costs. If you are unsure what to put, consult your mortgage professional.
Interest Rate
This is the interest rate that you are requesting for your mortgage. If you are unsure what to put, consult your mortgage professional.
Number of Months
This is for the length of time that you are requesting to have to pay back your mortgage. In most cases, you will request either a 15 year mortgage (180 months) or a 30 year mortgage (360 months).
Amortization Type
This is where you will select the type of mortgage you want to apply for. Fixed rate mortgage keeps the same interest rate every month. An adjustable rate mortgage (ARM) can change interest rate every month. A Graduated Payment Mortgage has a fixed rate however the initial payments start low and over time increase to pre set amounts to a maximum agreed payment. Other is typically used for commercial and private money mortgages.
Section 2: Property Information and the Purpose of the Loan
Subject Property Address
Input the full street address (including zip code) of the property being financed.
Number of Units
Single family homes will be considered 1 unit; duplexes considered 2 units, triplexes are 3 units, etc.
Legal Description of Subject Property
This is the description assigned to the property being financed by the county tax assessor’s office. It can be found on your county property tax records and on the county tax assessor’s records. Most people have no idea what the legal description of their property is, so most mortgage professionals will have you input the following: "See Primary Title Description". This will tell the underwriter to look at the title report that will be pulled for your mortgage file to find the legal description.
Year Built
What year was the subject property was built.
Purpose of Loan
Is this a new purchase or are you refinancing a property that you already own. Are you applying for a temporary short term Construction loan to build a new building or a permanent long term Construction loan? Mark your answer in this section.
Property will be:
- Primary Residence – a house that you are going to live in.
- Secondary Home – a house that you will live in for only 3 or 4 months out of the year.
- Investment Property – a house that you will not live in and will rent out to a tenant.
Complete this line if construction or construction-permanent loan
- Year Lot Acquired – What year did you acquire the land that you will build on?
- Original Cost – How much did you originally pay for the land that you will build on?
- Amount of Existing Liens – If there are currently any loans held against this land, what is the total amount of those loans?
- Present Value of Lot – where is the current market of the land as-is.
- Costs of improvements – the costs of the materials needed to build on the land.
- (a+b) Total - Should be self explanatory.
Complete this line if this is a refinance loan
- Year Acquired – when did you originally purchase the property you are refinancing?
- Original Cost – how much did you originally pay for it?
- Amount of Existing Liens - if there is another loan against the property, then what is the current balance of that loan.
- Purpose of Loan – do you want to cash out some equity to do home improvements or pay off some debt? Do you simply want a lower interest rate than what you are currently paying? Input your answer here.
- Description of Improvements – Have you made any improvements to the property or do you plan to make any improvements using the cash out from your refinance? Describe these improvements and the estimated costs involved.
Title with be Held in what Name(s)
Whose name(s) will appear of the deed to the subject property?
Manner in which title will be held
Will you hold the title by yourself (solely) or with another person (tenants in common)
Estate will be held in
Simply put, if you own the property being financed then check "Fee Simple". If the universal loan application is being used as a rental application and you will simply rent the property in question, then you would mark "Leasehold".
Source of Down Payment, Settlement Charges, and/or Subordinate Financing
Describe how you will fund your down payment and closing costs. Also if you are obtaining or already have a second mortgage on the subject property, describe that here as well.
Check back for my next post where we will go over sections 3, 4, and 5 of the universal loan application.
John Worley
www.rtlgeorgia.com
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