The first step potential homeowners encounter will be the mortgage application form, more commonly known in the industry as the “1003”. This form requires the borrower and their spouse to provide employment and wage information, data about the potential home being purchased, and debt obligations. Lenders will also request documentation to back up the information provided on the mortgage application and request a copy of the borrower’s credit report, at this time.
During this preliminary stage, the mortgage banker, broker or lender is assessing the borrower’s financial stability and capability to repay the mortgage loan if granted. Credit score, deposit reserves and outstanding credit obligations will all play into this evaluation period. If a borrower’s credit score is too low or if they do not have enough funds for the down payment, closing costs and reserve account their application may be turned down or the lender may require additional documentation regarding any red flag that may have risen. Once a borrower has passed this phase they are considered “pre-approved”.
Borrowers should make sure their financial house is in order before making application. Since a borrower’s credit report is of primary concern during this phase, obtaining and examining one’s credit report and paying off any unnecessary debt are great preliminary steps to follow prior to application.