What it is:
How it works/Example:
People may fill out mortgage applications jointly or individually. A mortgage application asks for the names, social security numbers and addresses of all applicants. The application then asks for financial details including, but not limited to, occupation and salary, the total amount of outstanding debts, savings and checking accounts balances, and the cash amount that the applicant is prepared to pay up front. Borrower generally have to provide records to verify the information in the application.
Once received, the lender reviews the information to determine the applicant's risk level. If the lender determines that the applicant is too risky, it may decline the mortgage application. If the lender approves the mortgage application, it specifies the total amount the applicant may borrow as well as the terms of the mortgage (usually 15 or 30 years), the interest rate, and monthly payment amount.
Why it matters:
A mortgage typically reaches into the hundreds of thousands of dollars and beyond. The associated risk to the lender can be tremendous. The mortgage application is one tool a lender can use to assess whether or not it can expect a borrower to make a full and timely repayment of interest and principal on the mortgage.