The Uniform Residential Loan Application

Understanding The 1003

By Kevin Panet

The 1003 Table of Contents

Learning Objectives Overview Section I. Type of Mortgage and Terms of Loan Section II. Property Information and Purpose of Loan Section III. Borrower Information Section IV. Employment Information Section V. Monthly Income and Combined Housing Expense Information Section VI. Assets and Liabilities Section VII. Details of Transaction Section VIII. Declarations IX. Acknowledgement and Agreement X. Information For Government Monitoring Purposes Continuation Sheet/Residential Loan Application Sample 1003 Summary 3 4 5 6 7 8 9

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The 1003
Learning Objectives: By the end of this training, you will: Understand the importance of the 1003 Ascertain basic borrower information Evaluate employment information. Determine monthly income and housing expenses Review Assets and Liabilities Understand the details of the transaction Review Declarations Understand the agreement Collect HMDA information Form a conclusion regarding the information provide that will lead to an appropriate underwriting decision.

The 1003 Overview

The first step in determining whether an applicant is able to qualify for a loan is the completed of the Uniform Residential Loan Application, commonly known in the industry as the 1003. This requires the broker to collect a lot of very personal and private information. This information must be protected at all times to maintain the integrity of the loan process. Generally, the broker or loan officer will help the applicant(s) to complete the 1003. Applications are usually done first with pen, then the information is entered into a Loan Origination System (LOS) by a processor. In some cases, the broker or loan officer might enter the information directly into the computer. In this section of the course, we will look at the 1003, section-by-section, pointing out key issues and concerns. Borrower Signatures: Before the loan application is begun, its important to know who is actually applying for the loan. In community property states, only one spouse is required to fill out the initial application.

The 1003
Section I. Type of Mortgage and Terms of Loan In this section, the broker will record the type of loan, loan amount, proposed interest rate and Amortization type. For example: Mortgage Applied for: For loans submitted to Ownit Mortgage, you can expect to see the boxed marked other to be checked. If other boxes are checked, then the broker might be shopping the loan with other lenders. At Ownit Mortgage, we do not use the Agency Case Number or Lender Case Number boxes. Amount: This is for the total estimated amount of the loan, including all fees. Interest Rate: During the initial loan application period, the broker usually gives only an estimate of what the final interest rate might be. Interest rates are dependent upon a variety of factors and it would be premature to quote a final rate at this point. Number of Months: This is the term of the loan. For a 30-year loan, the number would be 360. For a 15-year loan, the number would be 180. For a 40-year loan due in 30 years, the broker might still put 360 months. Amortization Type: This box will be marked either Fixed Rate or ARM. We do not do Graduated Payment Mortgages (GPM) at Ownit.

The 1003
Section II. Property Information and Purpose of Loan Subject Property: This is either the address of the new home that will be purchased or the current address of the home that will be re-financed. Legal Description of Subject Property: This is the lot and track numbers that appear on Title. Purpose of Loan: Determines type of loan being requested. Property will be: This establishes residency. If a Construction or construction-permanent loan: Complete as necessary. If a Refinance Loan: Fill in the blanks for Year Acquired, Original Cost (when acquired), Amount of Existing Liens (money still owed), Present value of Lot (current market value of property), Cost of Improvements (complete if improvements are to be made, adding to market value), and finally, Total (a+b). Title will be held in what Name(s): Generally, this is the borrower and co-borrower (if applicable). It is possible for someone to be on title, but not on the loan. However, if they are on the loan, they must be on the title. Manner in which Title will be held: This is for vesting purposes and can be as Joint tenants, tenants in common, etc. Source of Down Payment, Settlement Charges, and/or Subordinate Financing (explain): Fill in as necessary. Estate will be held in: Mark either Fee Simple (most cases) or Leasehold.

The 1003
Section III. Borrower Information In this section, the broker will begin to record information for the borrower and coborrower (if applicable). This includes: Borrowers Name: This is the borrowers full legal name (including Jr. or Sr. applicable). Social Security Number: Must be a valid Social Security number. The lender will check to make sure the number is valid. If the SSN starts with either a 7, 8 or 9, it may not be a valid SSN for lending purposes. The broker may ask the borrower for a copy of their SSN card as part of the pre-qualifying process to ensure the borrower has a legitimate SSN. Home Phone: This is a number where the borrower can be reached. It is OK to use a cell phone number if a home phone is not available. DOB (mm/dd/yyyy): Date of Birth. Borrowers must be at least 18. Yrs. School: Often this is checked by the broker to ensure the years of schooling is consistent with the level of employment. Marital Status & Dependents: Self Explanatory. Present Address: Location where the borrower lives, whether they own or rent, and how long they have been there. Mailing Address: If different from present address. If residing at present address for less than two years: If this is the case, the applicant must state their previous address.

The 1003
Section IV. Employment Information In this section, the broker will begin to record employment information. This includes: Name and Address of Employers: This should be the same name that appears on the employees pay stub (if the employee gets a W-2) or the name of the business that the borrower owns (if the borrower is self employed). If the borrower is selfemployed, then the Self Employed box must be checked. Lenders will always check to confirm employment status. The Employment information should be consistent with employment information contained in the borrowers credit report. Yrs. On this job: Lenders look for at least two years of employment history. If the borrower or co-borrower was a full time student, it is OK to state this. If the co-borrower is a non-working spouse, it is OK to say homemaker. Yrs. employed in this line of work/profession: Lenders look for consistency either in the job or in the profession. Position/Type of Business: This must be accurate and truthful. Lenders will confirm this and the loan may be denied if there is a false claim of employment. If employed in current position for less than two years: If this is the case, the broker should annotate what the applicant was doing, even if they were a student.

The 1003
Section IV. Employment Information (Contd) In this section, the broker will continue to record employment information (if applicable). This includes: This section differs slightly from the previous section. The primary difference is the box for Monthly Income. Remember, this is for the previous, not current employment situation. Current employment information is captured in Section V.

The 1003
Section V. Monthly Income and Combined Housing Expense Information This section must be completely filled out. It is important that ALL income is documented. Additionally, its not enough to merely estimate Proposed monthly housing expenses. Present expenses must also be included. Many lenders require this to determine the impact of payment shock. Gross Monthly Income: Base Employment Income: This is the total, or gross amount the borrower makes each month. Overtime: This is the amount of income the borrower receives consistently, or at least seasonably. Commissions: This income is usually associated with individuals who are in sales. This is money that they would receive on top of their base pay (if applicable). Dividends/Interest: This is income that comes consistently from stocks, bonds or other investments. Net Rental Income: If the borrower owns rental properties, and if those properties are producing a net income, that income should be listed here. Other: If there is other income, it needs to be described in the space provided below. Page 5 of the application can be used if the borrower runs out of room.

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Section V. Monthly Income and Combined Housing Expense Information Combined Monthly Housing Expense: Rent: If the borrower is currently renting, enter the amount paid (excluding utilities and other expenses. First Mortgage (P&I): Enter the amount (principle and interest) the borrower is currently paying (if they currently have a mortgage) and the proposed monthly payment. Other Financing: Enter any additional financing, including a second mortgage. Hazard Insurance: Borrowers must have enough insurance coverage for the amount of the loan. Real Estate Taxes: Normally paid once or twice a year, but must be broken out monthly. Mortgage Insurance: Generally required by conforming/conventional lenders when loan is 80% or more of the appraised value of the property. Ownit does not require MI on any of their loans. Homeowner Assn. Dues: Must be considered if the property is subject to CC&Rs (Covenants, Conditions , and Restrictions). Other: If applicable.

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Section VI. Assets and Liabilities It is critical that this section is filled out correctly. Any missing or falsified information may be result in the loan being denied by the lender. Purchases: If this is a purchase, the lender will want to see that there are assets available to help the borrower make loan payments, should something unfortunate occur. Assets will usually be verified by the lender. At Ownit, we will verify assets, even on NIV (No Income Verification) loans. Refinances: If this is a refinance, the lender will need to know what debts (if any) will be paid off as a result of the transaction. Accounts to be paid off are to be annotated by an asterisk (*). Most boxes in this section are self-explanatory.

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Section VI. Assets and Liabilities (contd) While lenders ask that this section be completely filled out, it is usually liquid assets that carry the most weight. Liabilities will be checked against those liabilities that show up in the credit report. Most boxes in this section are self-explanatory.

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Section VII. Details of Transaction a. Purchase price: The sales price of the home (for purchase transactions). b. Alterations, improvements or repairs: Additional costs, usually to fix last-minute issues with the house. c. Land (if acquired separately): Any additional costs associated with land. e. Estimated pre-paid items: Items that are not covered in closing costs. f. Estimated Closing Costs: These may include appraisal, credit, escrow and other costs associated with the loan. g. PMI, MIP, Funding Fee: Private Mortgage Insurance (PMI), Mortgage Insurance Premium (MIP) and/or a fee for funding the loan. h. Discount (if Borrower will pay): This is the amount of money the borrower will pay to lower their rate. i. Total costs (add items a through h): This is the total cost of the loan transaction.

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Section VII. Details of Transaction (Continued on Page 4 of 5) j. Subordinate financing: This is the amount of additional financing that may be needed for the full loan amount. k. Borrowers closing costs paid by Seller: This is an amount the seller might be willing to pay to help the borrower who is purchasing a house. l. Other Credits (explain): This could be other credit extended to the borrower. m. Loan amount (exclude PMI, MIP, Funding Fee): This is the loan amount, minus PMI, MIP and FF). n. PMI, MIP, Funding Fee financed: If not paid at closing, this is the amount that will be financed as part of the loan. o. Loan amount (add m & n): This is the total loan amount. p. Cash from/to Borrower (subtract j, k, l & o from i): This will be the amount either going to or from the borrower.

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The 1003
Section VIII. Declarations a. Are there any outstanding judgments against you?: This question is asked to determine if additional debts need to be considered in the Debt-to-Income (DTI) calculations. b. Have you declared bankrupt within the past 7 years?: This question is more relevant for prime lenders. At Ownit, we are generally not concerned about a bankruptcy (BK) if it is seasoned over 24 months, based on the discharge date. c. Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?: At Ownit, there will be no impact on events occurring 36 months or more in the past. d. Are you party to a lawsuit?: This questions seeks to understand if there is any legal action that may have an adverse affect on the loan. 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 questions seeks to understand if the borrower is involved in any other loan transactions that have experienced difficulties and might have a negative impact on the current loan application. Note: You may or may not see evidence of this in the applicants credit report.

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Section VIII. Declarations (Continued on Page 4 of 5) f. Are you presently delinquent or in default.?: This information will generally show up on the applicants credit report. g. Are you obligated to pay alimony, child support , or separate maintenance?: This must be disclosed and considered along with other debts. h. Is there any part of the down payment borrowed?: If so, this must be considered along with other debts. It may or may not show up on the credit report. i. Are you a co-maker or endorser on a note?: Seeks to establish of the applicant is a co-borrower on another loan. j. Are you a U.S. citizen?: Certain restrictions may apply for non-U.S. citizens. k. Are you a permanent resident alien?: Generally this applicant will have a 10-year expiration date stamped on their Alien Registration Receipt Card I-551, also referred to as a green card. l. Do you intend to occupy the property as your primary residence?: Usually, higher interest rates will be charged if the property is non-owner occupied. m. Have you had an ownership interest in a property in the last three years: This gives the loan officer a better understanding of the applicants prior mortgage experience.

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IX. Acknowledgement and Agreement The borrower and co-borrower are required to read the acknowledgement and sign their full legal signature. You should take the time to read this section carefully and make sure you understand every word of it. Brokers/Loan Officers must be able to explain all 11 points if questions are asked.

X. Information For Government Monitoring Purposes This information must be collected for HMDA (Home Mortgage Disclosure Act) purposes, unless the borrower chooses not to furnish the information.

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Continuation Sheet/Residential Loan Application In this section, the borrower will submit any additional information that is required for loan purposes.

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Sample 1003

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Summary
Remember the following: Filling out the 1003 is usually the first step in the loan process. It is impossible to effectively underwrite a file without a completed 1003. The more information provided on the 1003, the faster the loan will be funded. The more accurate the information is, the better chance the loan will be approved. 1003s will be review for red flags that may indicate material misrepresentation. If there is any false information entered into the 1003, it may be grounds for loan denial.

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