Uniform Residential Loan Application 1003

Transcription

1 Uniform Residential Loan Application 1003

2 Purpose Mortgage Loan Application The loan application is your introduction to the borrower. Analysis of the form helps you to develop an image of the borrower including: personal employment, type of transaction (refinance or purchase), monies needed for financing the loan, financial situation of the borrower, and time limitations in processing the loan file. This section provides the information necessary to assist you in completing the Form 1003, Uniform Residential Loan Application. Page 1 The information requested in this form is designed to identify several important areas of the borrower s financial and employment life and history. Form 1003 also identifies the property, its value, and the amount of the loan requested. At the top of the page you will find a section requesting information as to whether the application is representing more than one borrower. The next several pages will track the Form 1003 and will give you instructions for each segment of the application. The basic information sections are identified below. Type of Mortgage and Term of Loan This section deals with the loan program requested and the term of the loan in years. Be sure to discuss the various types of loans available and make the determination of the proper loan for the borrower's situation. Mortgage Applied For The appropriate box should be marked to indicate the type of mortgage being requested by the borrower. Agency Case Number This area of the loan application is provided for the lender to document the assigned Federal Housing Administration (FHA), Veterans Administration (VA) and Farmer's Housing Administration (FMHA) case numbers. Lender Case Number This area of the loan application is provided for the lender to document their internal case number that they have assigned to the loan. Amount The dollar amount of the loan, which the borrower is applying for, should be indicated. Interest Rate The interest rate is the percentage figure that the lender is charging the borrower over a set period of time for the money lent. Number of Months

3 Page 2 The number of equal monthly installments that the borrower must make to pay off the mortgage (e.g.: 360 months, 180 months). Amortization Type The type of mortgage instrument chosen to repay the mortgage debt. Fixed Rate: GPM (Graduated Payment Mortgage): ARM (Adjustable Rate Mortgage): Other: A mortgage whose interest rate remains the same for the life of the mortgage. A mortgage, which allows the borrower to begin with, lowers monthly installments which will continue to increase over a specified period of time. A mortgage, which allows the interest rate to periodically adjust to meet current rates. Any other amortization type other than the ones described above. Advise your clients that they will receive the Truth-in-Lending Document shortly after the application is submitted. Advise them that the APR Rate shown on the top of the document will be higher than the estimated rate you quoted. This is because the required government calculation includes some of the closing costs in the loan, which causes the effective rate to be higher. The payments will be based on the quoted rate if it is the final locked rate or the rate at closing. Property Information and Purpose of Loan This section will address the identity of the property and basic information regarding value and legal description. This section will also address other information items, such as whether the loan is a construction loan, a refinance loan, or a construction to permanent loan. The manner and names in which the title will be held will also be addressed in this section, as well as the source of the down payment. Subject Property Address A complete listing of the property address including street, city, state and zip code. Include the complete physical address. If a purchase, the address should match the Sales Contract. Number of Units The number of units contained in the property should be indicated in this area of the form. Legal Description

4 Page 3 Method of geographically identifying a parcel of land. This description of the subject property should be written in this area of the loan application. This information may be obtained from the purchase contract. Year Built The year in which the subject property was built should be indicated in this area of the form. Purpose of Loan The reason that the borrower is applying for a mortgage should be indicated by selecting the appropriate box. The Property will be (1) one of the Following This area describes how the borrower intends to use the property. Primary Residence: Secondary Residence: Investment: A primary residence is where the borrower will live the majority of the year. A secondary residence would typically be a second home or a vacation property. An investment property is an income producing property. The borrower would not occupy the premises. It is important to be aware of the use of the property in determining the loan-to-value ratio that is to be applied to a particular loan. If the borrower states that the property is to be a primary residence and subsequently rents out the house soon after closing there can be a problem with the investor. The note could be called in this case, which would mean that the loan would have to be paid off, with the possibility of foreclosure and other legal problems. Do not let yourself be a party to a problem loan. Construction Permanent: This line of the loan application is reserved for financial information regarding the lot and the improvements to that lot. This section must be completed for a take-out loan. Simply record the year the lot was acquired, the original cost, and existing debt on the lot, present market value, and cost of any improvements to be added and show the total. In the case of a construction loan, where the lot is being furnished by the builder, the loan will be treated as a purchase. When the client already owns the lot it will be treated as a construction to permanent loan. The construction to permanent loan is essentially a refinance of the interim construction loan and is handled accordingly. Lot Value Data / Year Acquired The date the lot was purchased by the borrower should be provided in this area of the

5 form. Page 4 Original Cost The original amount that the borrower paid for the lot should be provided in this area of the form. If the lot was purchased less than two years ago, the purchase price of the lot should be verified. Various acceptable forms of verification include lot purchase contract, transfer form, closing statement or title policy. Amount of Existing Liens The total of any existing loans against the subject property (lot loan and/or building construction loan) obtained by the borrower, should be entered in this area of the form. Present Value of Lot (a) The present value of the lot should be provided in this area. This value should be transferred from the "Estimated Site Value" line in the Cost Approach section of the Appraisal form. Cost of Improvements (b) The total amount of construction costs for the house should be entered in this area of the form. The cost of improvements should be supported by a construction cost breakdown signed by the builder. Total (a + b) The present value of the lot (a) plus the cost of improvements (b) equals the sales price of the property. The total value should be entered in this area of the form. Refinance Line This line of the loan application is reserved for financial information regarding the loan that the borrower is refinancing. Year Acquired The year that the borrower originally purchased the property should be entered in this area of the form. Original Cost The original purchase price of the property should be listed in this area of the form. Amount Existing Liens The total amount of any outstanding mortgages held against the property should be listed in this area of the form. This includes second mortgages. Purpose of Refinance The reason that the borrower is applying for a new loan on an existing property should be stated here (cash-out, home improvements, rate/term). Describe Improvements Made / To Be Made / Cost

6 Page 5 If the borrower has made improvements to the property, check the improvements "made" box. In addition, provide an itemized list detailing the total cost of the improvements. If the borrower has the intention of making improvements to the subject property, check the "to be made" box. Note the cost breakdown total in the cost area. Costs should be supported by a cost breakdown. Title will be held in what Name(s) The name(s) of the individual(s) who will appear on the title to the property should be written in this area of the form. Be sure to use correct legal names, no nicknames or shortened versions. The deed will be prepared in the name(s) listed!! Incorrect names will cause documents to be incorrect and the loan process may be delayed. Manner in which Title will be held There are several different manners in which title to a property can be held. Complete this area of the form with the appropriate designation. Listed below are common manners: Joint Tenancy: (Tenants in the entirety): An ownership of a property by 2 or more people who have an equal, undivided interest in the property. Tenancy in Common: An ownership of a property by 2 or more people, each of them having an undivided, but not necessarily equal, interest in the property. Single Tenancy: The ownership of a property by one individual or one legal entity (such as a corporation). Source of Down Payment An explanation should be provided as to the origin of the money that the borrower is using for the down payment and closing costs of the property (e.g., savings, sale of home, gift from parents, etc.) If the down payment is from sale of property, sale of stocks, inheritance, gift, or other assets being converted to cash, the client must be prepared to show documentation of the assets and the right to use the proceeds. Documentation requirements for source of down payment would include: 1. Savings: A copy of most recent statement. A verification of deposit would be sent for each account. 2. Sale of property: Information from the sales contract to verify the availability of funds for closing. A copy of the HUD-1 for that sale would be required.

7 Page 6 3. Stocks and Bonds: Several methods are used to make this verification. If there is a brokerage account, the Verification of Deposit can be used. If there is no broker, copies of the certificates can be obtained and the value verified in current stock price listings. Be careful not to make a copy of Bonds, since there are laws prohibiting this practice. A copy of the Transaction Record and or evidence of the proceeds having been deposited to the client's account will suffice. 4. Borrowed funds: May be used as a source of down payment if there is life insurance, boat, auto, etc. Be sure to note that the monthly debt ratio must include the payment on the newly secured debt in the qualification process. This debt must be recorded as a liability in Section VI of the loan application. 5. Gift funds: May be used to make the down payment, but must adhere to the guidelines listed below: VA and FHA Loans: 100% of the funds for down payment may be from a gift source. The donor must furnish evidence that the funds are a gift and accordingly do not have to be repaid. Obviously, this makes the VA and FHA loans more attractive to persons with limited cash resources. Conventional Loans: Under the strictest rules gift funds may be used as follows: Loan-to-value ratio of 95% Loan-to-value ratio of 90% Loan-to-value ratio of 80% No gift funds are permitted. 5% of the value may be a gift and the remaining 5% of the value must be from the borrower. All of the down payment and closing costs may be from gift sources. NOTE: The lender may require a Verification of Deposit for the donor funds to assure availability of funds for closing. The verification and donor letter stating that the funds are a gift that

8 Page 7 does not have to be repaid will meet the requirements in most cases. 6. Sweat Equity: If the borrower is qualified to perform certain of the of the work to be performed to serve as equity for the down payment. The builder must verify the value of the services. 7. Commodities / A borrower and seller may agree to trade items for Exchange: the down payment, such as jewelry, automobiles; property, etc. In the case of property there is an appraisal required. In the case of other items there must be two statements of value obtained. NOTE: Cash that is not in a bank account is not acceptable as a source of down payment. The funds must have been in the account for a period of at least three months, and the source must be verifiable. A borrower who deposits large sums just before making a loan application will be questioned as to the source of the funds. Be sure you address this issue when discussing the availability of the funds to be used in the down payment. Estate will be held in Indicate the way in which the estate will be held. Fee simple: Indicates an estate under which the owner(s) is entitled to unrestricted powers to dispose of the property. The property can be left by will or inherited. Leasehold: Leasehold indicates an estate in real property held under a lease for a fixed period of time. Borrower Information This section is fairly self-explanatory, since it asks for names, addresses, etc. The borrower must provide two years of residency information. List the dependents living with the borrower, only once, not on both borrowers information. Be sure to record accurate social security numbers, home phone, age of the borrowers and year in attendance at school. In the case of a borrower having a spouse with children from a previous marriage, that have not been adopted by the borrower, list the children of the new spouse in the co-borrower s section. You may not ask, "What is your marital status" in determining the status of the borrowers. You may, under regulations in the Equal Credit Opportunity Act, ask if they are married, unmarried, or separated. Never ask "Are you divorced?" or "Have you been divorced?"

9 Page 8 In the case of Government Loans, FHA and VA, where both spouse s work and the children are in pre-school, childcare expenses become a liability in qualification for the loan. Residency This section of the loan application provides you with the borrowers address and the length of time he/she has lived at that address. The information on the form should indicate whether the borrower rents or owns his/her current residence. If the borrower currently rents, a rent letter should be mailed to the address that the borrower uses to mail rent checks. A rent letter will provide you with valuable information regarding how promptly the borrower pays his/her current housing expense. The FNMA/FHLMC 1003 specifies that two years of residency history be documented. Two years of history must be verified by a rent letter for the file. Rent Letter The content of the rent letter should request: 1. That the owner/manager state the length of time that the borrower has rented, 2. The amount of rent paid monthly, 3. The payment history of the borrower, whether it is satisfactory or unsatisfactory. If the borrower has been living in the current residence for less than two years, you should establish a history of previous residences. Employment Information This section is designed to reveal the last two years of employment for the borrower and co-borrower. It also asks for the details regarding the stability of employment in both tenure of employment and type of job activities performed. Verify at least two years of employment activity. If the borrower has not worked in the same field or job for the last two years, explanations may be requested. Changing jobs may be a negative factor if the reason is not improvement of income and enhancement of job quality. Be sure to get the correct address of the human resources department that will have the information necessary to verify the employment record of the borrower. Wrong addresses will cause delays in processing of the loan.

10 Page 9 Borrowers who have just graduated from college and are working in their field will have consideration given so that the 24-month rule can be waived. This rule also applies to persons leaving the military services who are working in a field related to their military training. Employment This section of the loan application provides a summary of the employment history of the borrower, place(s) and length of employment for each employer. If either the borrower or the co-borrower has been at a job for less than two years, the previous employer and field of work should be identified. Frequent job changes indicate a need to ask further questions regarding the stability of the borrowers future income. If there have been any gaps or lapses in the borrowers employment history, the gaps must be explained in writing by the borrower. A summary of the history of the borrower in a cover letter is useful to clarify any issues. A self-employed box is provided for the lender to indicate whether or not the borrower is self-employed. Additional documentation required to verify the earnings of a selfemployed borrower includes the following forms: Profit & Loss Statement Balance Sheet Form U.S. Individual Tax Return All supporting schedules (e.g., Schedule C, Schedule E) Form U.S. Partnership Return of Income Schedule K-1 (Form 1065) - Partners Share of Income, Credits, Deductions, etc. Form 1120S - U.S. Income Tax Return for an S Corporation Schedule K-1 (Form 1120S) - Shareholders Share of Income, Credits, Deductions, etc. Form U.S. Corporation Income Tax Return Monthly Income and Combined Housing Expense Information This section gathers information regarding the borrowers and co-borrowers combined monthly income for the purpose of determining ability to repay the loan requested. As

11 Page 10 you will notice it asks for commissions, bonuses, and overtime as separate items. Only the base pay will be counted toward qualification unless certain information regarding the commissions, bonuses, and/or overtime is furnished to verify the regularity of the income and its probability of continuing. This must be provided by either the employer or evidenced by historical records, such as tax returns. Current pay stubs will help to show the appropriate breakdown of incomes. Income All income earned by the borrowers that will be used to repay the mortgage debt should be verified. This income can be derived from bonus, rental, property, child support, alimony or second job. Income that is verified as stable and ongoing can be considered to qualify the borrower(s). Overtime The employer should verify the probability of continuing overtime. Tax returns, W-2's or year-to-date pay stubs may be used to verify the regularity of the income received. The economic conditions, the employer and the industry should be taken into account before using overtime income to qualify the borrower. Overtime can be used as a compensating versus qualifying factor for the overall file. Bonus / Commission The borrower needs to supply signed income tax returns to verify income derived from bonuses and commissions. Be sure to look for business expenses on income tax Form 2106 (Employee Business Expenses). Dividend Income The borrower needs to supply signed income tax returns to verify dividend income. Verify that funds will remain after the closing of the mortgage transaction. Second Job Income from a second job can be used if the borrower's primary job lends itself to a second job. Income from a second job needs to be verified for two years before using the income to qualify the borrower. Employed by Relatives When employed by relatives, the income should be documented with copies of signed income tax returns and accompanying schedules. Installment Sales Payment Income derived from installment sales may be used if there are 3 to 5-years remaining on the contract. Rental Income Rental income should be verified by signed income tax returns. Net losses should be

12 Page 11 added to the borrower's total obligations. Net Rental Income is determined on page three of the application at the top of the page. This section details the income and expenses related to rental properties and arrives at "net rental income". The underwriter will adjust the gross income by 25% for a vacancy factor and any resulting negative income will be treated as debt in qualifying the borrower. Child Support / Alimony Child support/alimony income may be used if it is of a continuous nature and is verified by signed income tax returns, a court letter or a divorce decree. Verification should be made that the borrower has received the income for at least 12 months. Describe Other Income Income received from a source other than the borrowers primary employment should be identified in this section if it will be considered as income for repayment of the mortgage debt. Other forms of documentation Borrowers with income that is marginal in qualification may have to provide verifiable income other than their base pay. Stability of job and income are critical factors in making the determination to approve a particular loan. Remember, in determining whether income such as dividends, trust income, inheritances, and other income that is not earned income is eligible for qualification. You must be prepared to verify the following: 1) The borrower has received the income, 2) The borrower will continue to receive the income, and 3) Proof the borrower has the right to receive the income. This can be accomplished with copies of bank records, trust agreements, wills, verification of deposits with brokerage houses, and other records. These types of income may be important in establishing qualification for older borrowers who are not earning monthly income from a job. Since age cannot be used as a factor in qualification these other types of income are critical to some borrowers. Combined Monthly Housing Expense The right hand portion of this section asks for information regarding the Present and Proposed monthly housing expenses. This includes rent, mortgage payment (First Mortgage P & I), Other financing (P & I), Hazard Insurance, Real Estate Taxes, Mortgage Insurance, Homeowner Association Dues, etc. If the mortgage payment proposed is more than 50% higher than the current payment, there may be questions as to the affordability of the project for this borrower. The underwriters will compare the present and future payments to make a determination of whether the increase is too large for the income. In the case of a refinance with no cash out the payment should be

13 Page 12 lower than the present payment in order to justify the refinancing of the loan. Assets and Liabilities This section deals with the current financial condition of the borrower s in the form of a listing of current assets, such as cash in bank, savings, retirement, and other investments. It also asks for a listing of account numbers and addresses of the depositories. The assets section also identifies fixed assets such as real estate, personal property, and other investments. The liabilities section deals with the debts of the borrower and the names and addresses of the creditors. This information will also be verified. Cash Deposit The amount stated in this area should be supported by a verification from the party holding the deposit. Checking and Savings Accounts Each depository account should be listed separately; all account numbers must be identified. The amounts should be supported by a verification from the depository institution where the money is on account. Stocks and Bonds Stocks and bonds listed as borrower assets may be viewed as a potential source of funds, if they are verified. If stocks or bonds will be used for the down payment, request the most current statement of the borrowers brokerage account or copies of the actual certificates or stocks. Life Insurance The cash value of the borrowers life insurance policies may be viewed as a potential source of down payment, if it is verified. Current cash value of the life insurance policy should be verified by a statement from the life insurance company if the borrower plans to cash in the policy. If the borrower wants to borrow against the policy, obtain a statement from the insurance company that provides a summary of the loan and its repayment terms. Subtotal Liquid Assets (sufficient funds) When reviewing the loan application compare the liquid assets total to the Details of Transaction section. Does the borrower have sufficient funds to close the loan transaction? If it does not appear that there are sufficient funds, contact your underwriter or manager, expressing your concern. Liabilities All of the borrowers debts should be listed on the loan application. Debts

14 Chapter 4, Page 14 include but are not limited to installment loans, revolving charge accounts, real estate loans, stock pledges, and child support and alimony payments. There are separate areas at the bottom of the liabilities section for itemization of debts such as childcare and union dues. These debts are considered a part of the borrowers total obligations for FHA/VA financing. You may use the continuation sheet, page four, if necessary to provide the details. Be sure to include correct and complete information regarding the creditor's name, address, and the borrowers account number or loan number. Please remember that it is important to list the monthly payment and the number of months left to pay on the account. Debts with 10 months or less to run may not be counted in the qualification process. You should make it a point to reveal all the borrower's monthly debts. The credit reporting agencies will provide the underwriter with all the monthly debt for comparison to the application. Schedule of Real Estate Owned Each property owned by the borrower along with its disposition (sold, rented, pending sale) should be listed in this section of the form. If the property is listed as a rental property, income tax returns or leases should be obtained to verify the rental income received by the borrower. You are asked to identify what type of property, the present market value, amount of liens or mortgages outstanding, gross rental income (if applicable), amount of mortgage payment, amount of insurance, taxes, and maintenance, and determine the net rental income. The net rental income will be adjusted by a vacancy factor by the underwriter. Tax returns may be required to verify the rental income, especially if there is a net income or net cash flow from the rentals that is being used to qualify for a mortgage. At the bottom of this section provide information regarding previous credit under names different from the name of the borrower shown on the application. If there were other names used please provide the information in the appropriate spaces. This includes maiden names, former married names, etc. Details of Transaction This section deals with the various items of costs involved in the transaction, such as purchase price, prepaid items, closing costs, etc. and results in an estimate of the cash amount needed by the borrower to close the transaction. All of the applicable lines in the Details of Transaction section should be completed. This area of the loan application is used to calculate the total funds needed by the borrower to close the loan transaction. Purchase Price

15 Page 14 The purchase price is the amount agreed upon by the buyer and seller of the property. This amount is stated in the sales contract/escrow instructions. The amount written on line "a" of the Details of Transaction section should not include any discounts, rebates or other allowances paid or allowed to the buyer of the property. Alterations, Improvements, Repairs The amount representing any alterations, improvements and repairs that need to be made/will be made to the subject property should be indicated on this line. Land The purchase price of the land (lot) should be indicated on this line only if it was acquired separately, not included in the price of the improvements. Refinance The amount that is being refinanced should be indicated on line "d" of the Details of Transaction section. Lines "a" and "c" should not be completed to describe refinance transaction. The figure should include the total amount of all existing liens against the property. Estimated Prepaid Items The dollar amount that the lender is estimating the costs that the borrower will have to prepay (real estate taxes, interest, mortgage insurance and homeowners insurance). Estimated Closing Costs The estimated dollar amount paid by the borrower to affect the closing of a mortgage loan (origination fee, survey, attorney s fees). PMI, MIP, Funding Fee The amount paid (whether in cash or financed) by the borrower for private mortgage insurance on a conventional loan, MIP on an FHA loan, or Funding Fee on a VA loan. Discount The amount of money, typically based upon the loan amount, paid to the lender to reduce the interest rate. Subordinate Financing The amount of secondary financing obtained to finance the purchase of the property. Borrower's Closing Costs Paid by Seller The total costs that the seller is paying on behalf of the borrower that are associated with the purchase of the property.

16 Page 15 Other Credits Money that the borrower has already put down on the mortgage transaction. Examples of other credits include cash deposit application fee and underwriting fee. Loan Amount The amount of money that the borrower is borrowing to complete the mortgage transaction. PMI, MIP, Funding Fee Financed If the borrower chooses to finance the mortgage insurance premium or the funding fee, the amount of the premium or fee being financed must be indicated on this line of the form. Cash from/to Borrower The amount of money that the borrower must pay to complete the mortgage transaction or the amount of the money that the borrower will receive as a result of the mortgage transaction must be indicated on this line. A sample of the "details of transaction" is shown below. DETAILS OF TRANSACTION a. Purchase Price $135, b. Alterations, Improvements, Repairs -0- c. Land (if acquired separately) -0- d. Refinance (include. debt to be paid off) -0- e. Estimated Prepaid Items 2, f. Estimated Closing Costs 6, g. PMI, MIP, Funding Fee paid in cash -0- h. Discount (if borrower will pay) -0- i. Total costs (add items a. through h.) $144, j. Subordinate financing -0- k. Borrower's closing costs paid by seller 4, l. Other Credits (explain) Appraisal Credit Report Earnest Money 1, m.loan Amount 128, n. PMI, MIP, Funding fee financed -0- o. Loan Amount (add m & n) 128, p. Cash from Borrower (subtract j,k,l, & o from I) 10,615.00

17 Page 16 Declarations The declarations section of the application is very important for several reasons. First, it is asking for a specific answer to critical questions regarding the past history of the borrower and if applicable, the co-borrower. These questions will reveal critical information as to the stability, credibility, and financing history of the borrowers. "Yes" answers to any of the questions for either borrower or co-borrower will require complete and accurate explanation. Legal Questions This section of the form asks the borrower questions about his/her legal history. A borrower who holds an Alien Registration Card (Green Card) and has established a long-term residency commitment in the United States is not considered a foreign borrower. If a borrower responds positively to questions a-l, this should act as a red flag. Your job is to clarify the situation and document it for the loan file. Direct the questions in this section to the borrowers. a. Are there any judgments outstanding against you? Prudent borrowers will know the answer to this question. All judgments must be paid or settled prior to closing. In the case of tax liens that will be satisfied with the proceeds of the loan, it is possible to approve the borrower subject to this condition. b. Have you been declared bankrupt within the past 7 years? A prudent borrower will know the answer to this question and should know the details. A copy of the Petition and Discharge will be necessary and is part of the loan approval process. For conventional loans, the discharge must have been at least four years before the loan request. For FHA or VA loans, the bankruptcy must have been at least two years before the loan request (Chapter 7) and in the case of a Chapter 13 the debt must be 50% paid and the court must give permission to add the new debt. c. Have you had property foreclosed upon or given title or deed in lieu thereof in the past 7-years? In some cases the geographical location of the property may be helpful in softening the effect of a foreclosure. In some areas, where industry or businesses failed, there is a degree of acceptability of the foreclosure. The borrower must have had good credit before losing his/her job and must have reestablished good credit since the event. d. Are you a party to a lawsuit? If the borrower is being sued, there can be a problem due to the uncertainty of

18 Page 17 the outcome and the financial result. If the borrower is the plaintiff, there is less of a problem. Please furnish information about the suit so that the underwriter can give the client the best possible consideration for approval. e. Have you directly or indirectly been obligated on any loan which resulted in foreclosure, transfer of title in lieu of foreclosure, or judgment? This specifically refers to any loan that was related to a home, SBA loan, home improvement loan, educational loan, mortgage or loan guarantees, bond, or other financial obligation resulting in foreclosure. If yes, furnish the name of the lender, FHA or VA Case number (if applicable), and the reasons for the action. f. Are you presently delinquent or in default on any Federal debt or any other loan, mortgage, financial obligation, bond, or loan guarantee? If yes, give the details as described in the preceding question. g. Are you obligated to pay alimony, child support, or separate maintenance? If yes, provide details of the loan; it must be fully collateralized and the debt must be counted in qualification. h. Is any part of the down payment borrowed? If yes, provide details of the loan, it must be fully collateralized and the debt must be counted in qualification. i. Are you a co-maker or endorser on a note? If yes, details must be provided. The note is considered debt of the borrower unless certain conditions are met. The person for whom the endorsement is made must have made all the payments, and canceled checks must be offered as proof of the latest 12 months of payments. The other person must have made the payments on time and the debt must have been at least 50% paid. j. Are you a U.S. Citizen? If answered no, the borrower must provide a copy of his/her Green Card. Actually, it is unlawful for you to copy the card, simply ask to see and provide a written statement that you personally saw the card. The closing attorney may be required to re-verify the card at closing. This rule does not apply to FHA loans. k. Are you a permanent resident alien? If yes, the borrower is acknowledging the permanent nature of his/her residency in the United States. If the borrower is a non-resident alien, he/she

19 Page 18 is stating that they are not permanent residents and the lender will likely not be interested in making a loan under this condition, without a down payment in the area of 25% or more. l. Do you intend to occupy the property as your primary residence? If yes, the questions in "m" must be answered. m. Have you had an ownership interest in a property in the last three years? If yes, provide the symbols as answers in the appropriate spaces at the bottom of the declarations section. First Time Home Buyer The response to question "m" will enable lenders to determine whether a borrower qualifies as a "first-time home buyer. If the borrower responded negatively to the question, "Do you intend to occupy the property as your primary residence?" the borrower does not have to respond to question "l". Acknowledgement and Agreement This part of the application should be read to the borrowers in its entirety. Even though it may take a few minutes, the benefits for the originator will be worth the effort. This information is critical to the borrowers understanding of several important issues, such as acknowledging type of mortgage, occupancy, use of property, accuracy of information stated in the application, activities of the lender in respect to verification of information, responsibility for reporting changes in material information, reporting of delinquency of mortgage payments, transfer of ownership of loan or servicing, and that the lender is making no representations regarding the property, its value, or its condition. The "Certification" paragraph in this section serves to state borrowers commitment to the accuracy of the information in the application and to acknowledge that a deliberate misrepresentation of the facts in the application may result in "civil" and/or "criminal' penalties, fines, and/or imprisonment. This may occur under the provisions of Title 18, United States Code, and Section The results may also include monetary damages to the lender, or other persons who may suffer as a result of reliance on the information furnished. Borrower Signatures This section of the form asks the borrower to agree to certain stipulations regarding the use of the property, first mortgage, rights of lender, and borrower misrepresentations. The loan application is not a binding agreement unless it is signed by the borrower(s).

20 Page 19 Information for Government Monitoring Purposes This section addresses the requirement for review of loans made to specific groups in our society. Federal agencies are charged with the responsibility to monitor mortgagelending ratios for different economic groups and to provide information to the appropriate government agencies that report on these activities. Completing this section is optional for the borrower, but is required for the loan officer. The Equal Credit Opportunity Act, the Fair Housing Act, and other Disclosure Laws are the sources for these requirements. As was noted in the previous section, it is better for you to read this section to the borrowers to be sure they understand what they are acknowledging. If the borrowers do not wish to complete this section, you must check the appropriate spaces and proceed based on visual observation or surname and complete the section. Have the borrowers sign and date the application at the spaces indicated. The interviewer may also be required to sign the application in a face-to-face interview. Check with the lender regarding signatures.