The 1003 Form By Sushant

The 1003(URLA) Form

1003 Form Sections 

The Uniform Residential Loan Application (URLA) is the official application form for all residential loans and is the central document of the residential loan application process.

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The 1003 form gathers all the crucial information about the prospective borrower that the lender will need to evaluate the applicant's creditworthiness The URLA 1003 consists of four legal-size pages. The fourth page is a blank addendum page, while the first three pages contain the following sections: Type of mortgage and loan Property information Personal information about the borrower Employment information about the borrower Monthly income and expense information Asset and liabilities statement Transaction details Declarations by the borrower Borrower acknowledgment Information for government monitoring

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Type of Mortgage and Loan 

Section 1 of the form collects basic information about the loan being processed .

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The entries in this section include the following: Mortgage

type (VA, FHA, RHS or conventional).

Agency &

lender case numbers.

Loan

amount: Monetary figure that the borrower will be requesting from the lender .

Interest

rate. Indicate the rate for which the borrower is applying, based on current market rates.

Number

of months. This is the loan's term expressed in months.

Amortization

type : Fixed Rate/GPM or ARM.

Property Information 

Section 2 gathers information about the property that the applicant wishes to refinance or purchase.

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The entries in this section include the following: Subject property. Number of units. Legal Description. Year built. Purpose of the loan. Property type. Information for construction or construction-permanent loan. Information for Refinance loan. Title will be held in what name. Manner in which title will be held. Estate will be held in. Source of down payment or subordinate financing.

Purpose of Loan 

Purchase

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Refinance

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Construction: Short-term

financing that provides the borrowers and their contractor funds to build a

new home. Construction The 

loans are riskier for the lender.

lender is lending money for something that does not yet exist.

Construction Permanent: For

the short-term construction loan to be refinanced with a "permanent" mortgage loan, upon completion. This

permanent loan is simply any of the various standard refinance mortgage loan programs available. 

Lease option: owner allows an individual to use a property in exchange for rent, and also gives that individual the right to buy the property for a specified price within a specified period.

Purpose of Refinance 

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To mortgage lenders, there are basically two types of refinances: Cash-out No cash-out (rate & term) Cash-Out Refinance: Option to borrower with additional cash from an increased loan amount. This privilege comes at a price. Lower loan-to-value (LTV) ratios. Rate and term (no cash-out) refinance: straightforward refinance of an existing loan. Higher loan-to-value (LTV) ratios.

Analyzing Subject Property 

All lenders limit the types of property they will finance with a mortgage loan.

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Programs that a single lender will offer will have a varying property requirements from program to program .

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From the mortgage lenders point of view, real estate tend to fall into the following general categories:

Residential Commercial Government Agricultural Industrial

1-4 Units and Occupied for Residential usage. Commercial property are all properties involved with comm. Properties belonging to the government or similar authority constitute a majority of the available real estate in the U.S.

Analyzing Property Types 

Loan UW will typically revolve around five possible issues:

Occupancy

No of Units

Community Structure

Condition

Conventional market limited to 4 units all of which are zoned and occupied as Residential. Primary Residence: Many Single family situated in a complex shared residence. More then 4 units considered as Commercial property. Owner Occupied, most common include  Four Single Family Residence (SFR):the following: Best terms and highest LTV limits. Norm is 95% LTV, with 97% also there. Co-operatives. Typically LTV limit 97% with many 100% programs also available. For no cash-out 90% LTV is standard. For Condominiums. Cash-out refinance for conforming 80% and 125% LTV on 2nd Mortgage. For cash-out refinance max 75% LTV.  Secondary Residence: Townhouses.  Two-unit Properties: Same as Primary Residence but slightly more restrictive terms Planned Unit (PUD). Normdevelopments is 90% LTV with 95% also there. LTV ratio limits are slightly lower then primary loans. For no cash-out 80% LTV is standard.  Investment Property: For cash-out refinance max 75% LTV.  Three-unit/Four-unit Properties: Non-owner occupied and riskier investment for mortgage lenders. Norm is 80% LTV. For no cash-out 80% LTV is standard. For cash-out refinance max 70% LTV. 

Zoning

Personal Information 

Section 3 collects following relevant personal information about the applicant and, if applicable, the co-borrowers: Borrower's name. Social security number. Home phone (including area code). Age. Years of schooling. Marital status. Dependents (number and ages). Present address. Former addresses.

Employment Information 

Section 4 collects following relevant employment information about the borrower and, when applicable, co-borrower: Name and address of employer. Years on this job and Years employed in this line of work/profession. Position, title or type of business. Business phone. Former employment.

Analyzing Employment 

Employment is analyzed to ensure that qualified income will continue .

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Conforming lenders typically require 2 full year's of stable employment, preferably in the same field and company.

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Non-conforming lenders will often accept significantly less, with some programs accepting borrowers with only a two-month job history.

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Exception to two-year minimum: 

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school and military.

Special employment situations: There are four types of special employment situations that often arise and must be handled with more work: Self-employment. Second jobs. Part-time employment. Seasonal employment.

Income and Expense Information Section 5 provides a table for the applicant's monthly income and to provide projected monthly housing expenses. 

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The basic question of income qualification is can the applicant afford the projected payments for the proposed loan. For most mortgage lenders, the answer is three-part process: 1. Determine effective income. 2.Calculate long-term debts and housing payments. 3.Analyze debt-to-income (DTI) ratio.

Analyzing Income Determine effective income     

Lender first determine qualifying income. Applicant must try to unearth all possible income source. Key to acceptable income is “Stability” and “Documentation”. GROSS MONTHLY INCOME is all acceptable earning prior to any taxes and deductions. Lender tend to lump acceptable income into 5 groups: Base Income: Starting point, Salaried app. Divide annual income by 12 and hourly wage earners calculate their income for 35-40 hrs per week. Overtime, bonuses & Commissions: Unstable income averaged over 24 months. Monthly average added to Base salary. Unstable personal income: Income from self-employment, dividends and interests. There must be at-least 2 yrs history. Rental Income: (i) Owner occupied (ii) Investment Other Income: Other source such as Alimony, Child Support, Welfare etc but should satisfy below requirements: (i) Documented (ii) Stable and (iii) Continually

Analyzing Income Calculate Long-term debts and housing payments 

After compiling Gross Monthly Income applicant must calculate total long-term debts.

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Projected housing payments considered elements of long-term debts.

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Key to identify long-term debts is 10-month rule.

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Following 4 long-term debts must be calculated: Projected Housing Payments :PITI payments for home. Not for investment property. Installments debts : All loans that will have at least 10 more payments. Revolving debts: All credit cards related debts. Other debts: Child support, alimony, separate maintenance etc.

 

Analyzing Income Debt-to-Income Ratio 

Following steps are used to calculate applicant’s DTI :

1. Add up your total net monthly income: This includes your monthly wages and any overtime, commissions or bonuses that are guaranteed; plus alimony payment received. If your income varies, figure the monthly average for the past two years. Include any monies earned from rentals or any other additional income. 2. Add up your monthly debt obligations. This includes all of your credit card bills, loan and mortgage payments. Make sure to include your monthly rent payments if you rent. 3. Divide your total monthly debt obligations by your total monthly income. This is your total debt-to-income ratio.  

4. Take action if your ratio is higher than 0.36, which industry professionals would call a score of 36. The lower the better. Any score higher than 36 may cause an increase in the interest rate or the down payment on a loan you apply for.

Analyzing Income Debt-to-Income Ratio (Contd.) 

DTI sets limits on how much of the applicant’s gross income can be used for the loan.

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Conforming programs examine 2 separate DTI ratios: Housing

expense: Front-end ratio and projected housing expense. Max DTI 33-35% of monthly income.

Long-term

expenses: Back-end ratio, total of all of the applicant’s long-term debts.

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Some Non-conforming programs allow DTI to reach 45% to 55%.

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The Final stage will use the preceding income and debt calculations to determine income qualification.

Analyzing Income Debt-to-Income Ratio (Contd.)

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If the applicant's DTI ratios do not meet the loan program requirements, he or she has the following options: Change Lower

the requested loan.

debt payments.

Increase No

income calculations.

income verification program.

Assets and Liabilities Statement 

Section 6 collects data about the applicant's assets (including real estate), liabilities and net worth. Completed jointly or not. Assets. Cash deposit toward purchase. Checking and savings account. Stocks and bonds. Life insurance net cash value. Subtotal liquid assets. Real estate owned (market value). Vested interest in retirement fund. Net worth of businesses owned. Automobiles owned. Other assets. Total assets. Liabilities. Debts owed. Alimony, child support or separate maintenance. Job-related expenses Total liabilities Net worth Real estate owned.

Analyzing Assets 

Lenders process the borrower's assets to analyze the borrower's eligibility in two areas: (I) Confirm that the applicant has sufficient assets to meet closing costs and program guidelines. (ii)Verify that such assets are acceptable.

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The accumulation of assets demonstrates how well the borrower has used his or her income. The applicant must show sufficiency in two areas:

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Liquid Assets Cash on deposit Cash deposits toward purchase Cash gift Secured loan proceeds Sale of assets Life insurance policies Stocks, bonds and money market funds Real estate commissions Seller and lender subsidies Rent credit Pension, IRA and 401K accounts & Bonus income

Hard Asset & Net Worth Hard

assets are any possessions that are not cash or cannot be quickly converted into cash. 

cars, jewelry, electronics and real estate

.

Analyzing Asset (contd.) Liquid Assets 

Cash-on deposit: Primary source is applicant’s bank account. Copies of 2 months statement is required. Undeposited cash will not be acceptable with conforming programs. As the processor reviews these bank statements, he or she will confirm the account ownership but will focus on two elements: Current balance: This amount is normally what the applicant can use for qualification. Average balance: The account's average over the past two to three months.

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Cash deposits toward purchase: This deposit is usually called the earnest money deposit. Held by the seller's agent. Following items to confirm that the funds used for the earnest money deposit are acceptable: (i) A Verification of Earnest Money Deposit (VEMD) completed by the agent. (ii) Copy of bank statement showing source of the bank funds.

Analyzing Asset (contd.) Liquid Assets 

Cash gift: Gifts from relatives are normally acceptable source of funds, with restrictions. 97% LTV loan: When the total down payment is 3% of price, that entire 3% must come from the applicant's personal funds. 95% LTV loan. When the total down payment is 5%, the first 3% must come from the applicant's personal funds. 90%+ LTV loan. If the applicant will be providing at least 10% of down payment, the first 6% must come from the borrower's personal funds. When gift funds are being used, the loan processor will require additional items to verify that the funds are acceptable: Gift

letter. The gift letter must come from a qualified donor (relative) . Donor source documentation: Copies of the donor's bank or asset statements for the accounts from which the gift funds will be drawn must be provided. Copy of gift check: The applicant must make a copy of the gift check provided by the donor. Verification of deposit: A deposit slip indicating the date, account and amount should be sufficient.

Analyzing Asset (contd.) Liquid Assets 

Secured loan proceeds:

->Funds derived from a loan secured by a personal property or real property . -> Unsecured personal loans (e.g., credit card cash advance, signature loans, personal l loans, are normally not eligible for conforming loans. -> Lenders are very concerned about potentially borrowed funds, because these would increase the borrower’s liabilities and may disqualify the borrower’s debt-to-income ratios. The borrower must explain events that may indicate borrowed down payment funds: New account. A savings or checking account that was recently opened may indicate borrowed funds. Sudden deposit. An existing account that suddenly contains a significantly higher than average balance may indicate the deposit of unacceptable funds. New loans. A new loan may indicate that the applicant has borrowed money for the down payment. Undocumented money. Due to verification difficulties, "cash on hand" and "mattress money" are not acceptable liquid assets with conforming loans.

Analyzing Asset (contd.) Liquid Assets 

Sale of assets : Proceeds from the sale of the borrower's personal or real property . The main challenge is to document the source of funds to be used for closing. If real estate is being sold to generate cash, the seller will normally receive a certified HUD-1 settlement statement from the closing agent. The sale of other possessions—such as jewelry, electronic equipment, luxury items and cars—require following documentation: Bill of sale Copy of payment check Deposit receipt Automobiles

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Life insurance policies: The cash value of a whole life insurance policy is an acceptable liquid asset.

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Stocks, bonds and money market funds: Investments in securities—such as stocks, bonds and money market funds—are acceptable liquid assets.

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Real estate commission:If the buyer is a real estate agent, he or she may want to use his or her share of the real estate commission to satisfy asset requirements.

Analyzing Asset (contd.) Liquid Assets 

Subsidies from seller or lender: ->Most programs allow the seller or lender to pay the borrower's closing costs and a small portion of the down payment. ->These subsidies are normally limited to 3% of the purchase price or refinance loan amount.

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Rent credit: ->This variation of the "lease to own" option is acceptable as liquid assets with conditions.

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IRA and 401K accounts: ->The net cash value of pension funds, such as individual retirement accounts (IRA) or 401k accounts, are acceptable sources of funds.

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Bonus Income: Some bonus or miscellaneous income can be used to document acceptable source of funds. Regularly Income Tax

expected bonus, Commissions above normal average.

from a special short-term contract ,Wedding gifts ,Gaming and lottery income

refunds

Analyzing Liabilities  

An applicant's liabilities regularly play a limiting role in the applicant's search for credit. There are two areas of concern regarding the applicant's liabilities: Qualifying liabilities Types of liabilities

Qualifying liabilities The

basic liability qualification requirement is that the applicant's income is strong enough to afford both the proposed mortgage and all of the applicant's other debts. The

applicant's liabilities include all demands for repay. 

Mortgage lenders tend to focus on long-term debts

Types of liabilities Installment debt Revolving charge accounts Education loans Checking account credit line Single payment notes Pledged asset obligations Contingent liabilities Alimony, child support and separate maintenance Debts on other real estate Interim financing Collections, delinquencies and judgments Employer-guaranteed mortgage

Analyzing Liabilities (contd.) Type of Liabilities 

Installment debt: Any loans and similar debts that require regular monthly payments on a predetermined schedule.

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Revolving charge accounts :Revolving charge accounts with outstanding balances are considered long-term liabilities if the borrower will continue to use the account.

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Education loans: In the U.S., student loans are typically delayed payment programs.

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Checking account credit line: A line of credit extended in connection with a checking account is normally considered a long-term liability if a balance is owed.

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Single payment notes: Interest-only programs, in which the total principal balance is due at the end of the term but interest payments are normally due each month.

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Pledged asset obligations :Basically installment loans, and mortgage loans are the most common.

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Contingent liabilities: Any debt obligations that may demand payment at a future date.

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Alimony, child support & separate maintenance

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Debts on other real estate: Payments are held against the investment property.

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Interim financing: Short-term financing in anticipation of a long-term loan.

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Collections, delinquencies and judgments

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Details of the Transaction 

Section 7 repeats the good faith estimate (GFE) in itemizing how funds will be disbursed regarding this loan. Purchase price. Alterations, improvements, repairs. Land (if acquired separately). Refinance. Estimated prepaid items. Estimated closing costs. PMI, MIP, Funding fee paid cash. Discount (paid by borrower). Total costs. Subordinate financing. Borrower's closing costs paid by seller. Loan amount (excluding PMI, MIP funding fee financed). PMI, MIP, funding fee financed. Loan amount (sum of two preceding). Cash from/to borrower. Calculating the borrower's credited items. Determining remaining debt or surplus.

Declarations by Borrower  

Section 8 contains yes/no declarations that the borrowers must answer. If the applicant answers "yes" to any of the first eight questions (declaration lines a-i), then he or she must provide an explanation in the addendum sheet. 1. Are there outstanding judgments against you? 2. Have you been declared bankrupt within the past 7 years? 3. Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years? 4. Are you a party to a lawsuit? 5. Have you directly or indirectly been obligated on any loan which resulted in foreclosure , transfer of title in lieu of foreclosure or judgment? 6. Are you presently delinquent or in default on any federal debt or any other loan, mortgage, financial obligation, bond or loan guarantee? 7. Are you obligated to pay alimony, child support or separate maintenance? 8. Is any part of the down payment borrowed? 9. Are you a co-maker or endorser on a note? 10. Are you a United States citizen? 11. Are you a legal resident alien? 12. Have you owned property during the past three years?

Borrower's Acknowledgment & Agreement 

Section 9 provides the basic agreement description of this application. The applicant must sign and date this section to certify and authorize the loan application.

Information for Government Monitoring 

Section 10 collects information required by the government to monitor lending practices.

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The applicant may choose not to provide this information, but the loan officer must still provide this data based on visual observation

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The government monitors these characteristics for signs of discrimination.

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The loan officer who gathered the information in this application also must sign and date the application, and indicate how the interview was conducted.