What is a loan application?

The loan application is a detailed form that lenders use to evaluate whether or not they can give you a loan, and if so, the amount of money they can lend you. Lender applications vary by company, but on the application you may be asked to provide all or some of the following:
❑ Bank account balances and account numbers, as well as bank branch address
❑ Information about where you work or what sources of income you have
❑ Outstanding debts (including loans and credit cards with names and addresses of creditors)
Once this information is provided, the lender will pore over your financial situation, based on that information, and suggest programs that most closely meet your needs. If your financial situation doesn’t measure up, the lender may also suggest steps you can take (cleaning up your credit, paying down some of your monthly debt, for example) to get it into mortgageworthy shape. If this happens, bear in mind that not all lenders are alike, and that some may be more willing to extend flexible programs to first-time home buyers while others may be more stringent with their criteria. If you run into issues working directly with a bank, for example, find a good mortgage broker (unlike banks, these folks have a knack for matching lenders with borrowers who need help getting their finances in order) and have that person work on the preapproval for you.
It’s not a final loan commitment, but a preapproval letter does show that you’ve taken steps to get the ball rolling on the financing before spending time on your house hunt. It shows your financial strength and proves that you’re not just out there ‘‘kicking tires’’ but that you have the wherewithal to follow through with a purchase. This information is important to owners since they do not want to accept an offer that is likely to fail because financing cannot be obtained. It also helps you, as the home buyer, to know exactly where you stand when it comes to how much you can pay for a home when you enter into a purchasing agreement.