Applying For a Loan

In the past, most people with disabilities may not have been considered potential homeowners because they may not have fit the standard underwriting guidelines that lenders use to determine whether a buyer receives a loan. These guidelines are called underwriting criteria. Over the past few years, lenders nationwide have begun to establish new underwriting criteria that make it possible for people with disabilities to purchase homes. We have learned that through creativity and planning, people living with disabilities can become successful homeowners. Cooperation among individuals, service agencies, and financial institutions has resulted in new ways of using benefits as income. Lenders are beginning to accept public benefits as viable sources of income for borrowers. They recognize that a few changes in lending guidelines can create a win-win situation. Individuals obtain mortgages they can afford, while the lenders close more mortgage loans.

Once you and your planning team have determined the lender that is best for your situation, you are ready to make an appointment for a loan interview. Ask for the loan application to be mailed or faxed to you, and request a list of required documents that you must bring to the interview.

If you need assistance in completing the loan application, the lender can help you fill it out. This form will help the lender evaluate the risk (how likely you are to repay the loan) involved in lending you money. In assessing your application, the lender will look at the "Four C’s" of lending: capacity, credit history, capital, and collateral.

Can you pay back the loan? The lender will want to know how much money you earn. This income may come from employment or another stable source of income such as public benefits, or a combination of both.

Will you pay back the debt? The lender will look at how much and how often you borrow money, and if you pay your bills on time, as well as whether you live within your budget. If you have nontraditional credit information, the lender will want to review it. In addition, the lender will want to look at how you have paid your bills in the past. By examining your expenses, such as rent, utilities, a car payment, credit card debt, installment loans, child support payments, and any other expenses you incur.

Do you have enough cash for the down payment and closing costs? Some of these funds may come in the form of gifts, grants, or loans from various sources. The lender will also want to know whether you will have money left over after the purchase (referred to as "reserves") for unexpected emergencies.

Will the lender be completely protected if you do not pay back the loan? In the event that you are unable to fulfill your obligation, the lender must be sure that the property is worth enough money to cover your unpaid mortgage. Therefore, you will be required to have the property "appraised" or the value confirmed by a professional. In addition, documenting any renovations, repairs, or rehabilitation you plan to do on the property will be important.

A loan interview is a meeting between the person applying for a mortgage and an agent from the lending institution (the loan officer or originator). Being properly prepared for the interview is very important. You should come to the interview meeting with all of the required information (names, addresses with zip codes, phone numbers, dates of employment, account numbers, etc.) readily available.

Before you meet with the loan officer, complete the "Pre-application Worksheet" (Worksheet 4). This worksheet will help you to gather and organize the information you will need for your interview. Be sure to bring it with you to the interview.

It is critical that you have the assistance you need at the interview. You and your planning group members should determine who is the most appropriate person to accompany you. Whether it is your facilitator, your guardian, or a housing counseling agency staff person, be sure that everyone is thoroughly prepared prior to the meeting. Let the loan officer know how many people will be attending the interview.

The loan will be processed faster if you bring the following documents with you to the loan interview:

• the purchase contract for the house;
• your bank account numbers, the current balance in your accounts, the address of your bank, and your most recent bank statements;
• pay stubs, W-2 forms for the past two years, or other proof of employment and salary over the past two years;
• documentation of all public benefits you receive, such as SSI statements;
• information about debts, including loan and credit card numbers, the balances, and the names and addresses of your creditors;
• any nontraditional credit information you have accumulated, including references from landlords or utility companies;
• the name and address of your guardian, if you have one, and the details about the type of guardianship involved;
• the name and address of your representative payee, if you have one, and a description of the assistance they provide to you; as part of the loan application, your representative payee will need to provide the lender with copies of the accounting reports submitted to the Social Security Administration for the previous two years.
• evidence of your rent payments, such as canceled checks from the previous twelve months, or receipts. If someone paid rent on your behalf, bring along documentation from that person or agency explaining how and why that was done.

Each state has its own laws regarding home purchase by individuals who have guardians. Depending on where you live, your guardian may be required to obtain approval from a probate court judge in order for you to purchase a house. In some states, only a conservator can make such a request. The length of time it takes to obtain court approval may be as long as six months. Your guardian should be prepared to explain to the court why it will be beneficial for you to own your own home. The judge will also want information about the type and amount of assistance you will receive in your new home.

Unfortunately, the laws are often vague and subject to conflicting interpretations, even by judges in the same state. Your guardian or conservator should consult with an attorney in your area and the probate court that oversees the guardianship to determine exactly what is required to enable you to purchase a home. For further assistance, contact the Protection and Advocacy Agency in your state. The number may be obtained by contacting Fannie Mae’s HomePath Services at 1-800-7FANNIE.

Since interest rates are always subject to change, you may want to ask the lender to lock in the current rate while the application is being processed. Ask when the lock-in begins and how long it will last and request the agreement in writing. A lock-in that will last until the date of closing is the best; if it expires before the closing, you may need to ask for an extension.

The lender may charge a fee for locking in the rate, but this money will be deducted from your closing costs once you close on the house. However, if your loan application is denied, this money may not be returned.

Within three days from the date you submit your application for a home loan, the lender is legally required to provide you with an itemized list of what it will cost to settle (or close) the loan. This report is called a "good faith estimate." The lender must give you a copy of the government publication, A Home buyer’s Guide to Settlement Costs. Reading the guide is helpful. There is a detailed discussion of closing costs in the next Chapter.

The lender who processes your loan will be looking primarily at two things:

• the property that you want to buy (since it serves as collateral for the loan); and
• your financial circumstances, as well as your credit history (since these factors will determine whether you will be able to repay the loan).

The lender will ask for an appraisal of the property, review your credit report, and verify the information on your loan application. The lender will also need to have assurance that the property is in sound condition, and may ask for a copy of your property inspection report.

The lender will arrange to obtain an appraisal, which is an estimate of the value of the property. You will be charged for this service. A professional appraiser will judge how much the house is worth based on prices that have been recently paid for similar homes in the same area. An appraisal is required because the lender will not lend you more than a certain percentage (typically 95 percent) of the value of the house. This is called the "loan-to-value ratio." If the appraised value of the home is less than the price you have agreed to pay, you may receive a smaller mortgage than you asked for. If this happens, you will have to pay a larger down payment. However, if you included an appraisal contingency (discussed in Chapter Three) in your contract and the appraisal is much lower than expected, you might be able to re-negotiate the price with the seller.

The lender will order a credit report on you. Both you and the lender will receive a copy of the report. As we have discussed, your credit report will show how you have handled any past debts and credit accounts, such as car loans or charge accounts. If you have produced documentation of your nontraditional credit history and this documentation reveals good bill-paying habits, the lender should be satisfied.

If there are any negative items on your credit report, the lender will probably ask for a written explanation from you. Negative items would include a history of late payments or failure to pay back money you borrowed. This is routine practice; do not be alarmed about this requirement. Respond as quickly as possible with an honest statement about what caused the problem and how it was resolved.

If you receive cash benefits from the Social Security Administration (i.e., SSI, SSDI) and you are unable to manage your benefit payments, the Social Security Administration (SSA) may select a person or organization to do so for you. The representative payee receives cash benefit payments on your behalf and determines how, in your best interest, your funds will be spent. Historically, people who have resided in institutions, nursing homes, group homes, and other housing programs run by agencies have had representative payees assigned to them.

A representative payee is not the same as a guardian (guardianship was discussed earlier in this chapter). Many individuals who have representative payees do not have guardians. The responsibilities of a representative payee are very specific and are closely monitored by the SSA, which has strict guidelines to ensure that your money is spent in ways that will benefit you and meet your needs. The SSA requires that your representative payee file a written report at least once a year detailing how your money was spent.

As part of the loan application, your representative payee will need to provide the lender with copies of the accounting reports submitted to the SSA for the previous two years.

The lender will verify the information that you provided on your application by requesting the same information directly from your employer or other sources you list. This includes information about your employment and credit history, your checking and savings accounts, and your rent payment history.

Finally, if the lender requires you to have private mortgage insurance (PMI), the loan will also have to adhere to any rules that the mortgage insurer may have. If you obtain a loan through the FHA, VA, or RHS, you must meet their mortgage insurance standards.

During the processing, if the lender requests additional information, be sure to respond promptly. You may call the lender occasionally to check on the status of your application. You should contact your employer or others who need to provide documentation, references, or information for your loan if this information is not being sent in a timely manner.

Once your loan is approved, you will receive a commitment letter from the lender. This letter is a formal offer to provide the loan and will include the following:

• the amount of the loan;
• the term of the loan (how many years you have to pay back the loan);
• the loan origination fee (a percentage of the loan amount);
• the points (a one-time fee that the lender charges to originate your loan, one point is equal to one percent of the mortgage);
• the annual percentage rate or APR (the total cost of the mortgage stated as a yearly rate, including the interest and origination fees);
• the monthly mortgage payment (PITI: principal, interest, taxes, and insurance); and
• a list of any documentation not yet provided which you will need to supply before the closing.

The lender will ask you to accept the loan offer and close the loan within a certain period of time. Be sure to thoroughly review the commitment letter before you sign it, and ask your planning group and any other appropriate person(s) to review it. You should be confident that you understand everything in the letter, and that you will be able to meet all of the conditions set by the lender. When you sign the commitment letter, you agree to accept the terms and conditions of the loan offer.

You and your planning group have done a great deal of work to reach this stage in the home-purchase process. Thinking about and planning for the future is equally important if you are to be secure and comfortable in your new home. The following are some critical areas to consider.

You will probably live in your new home for many years. Whether it is a new house or an older home, it will need repairs and maintenance. While you may anticipate and prepare for such routine improvements as painting, wallpapering, or installing new carpeting, unexpected and costly repairs will be necessary from time to time.

In addition to your mortgage payment and other monthly expenses, you must be prepared for the costs of repairs and upkeep on your home. There are a number of ways to ensure that you will always have money set aside for maintenance. Some homeowners have established a special escrow account specifically for maintenance and repairs. If you risk losing public benefits from accumulating too much money, a trust or escrow account may be established to protect these funds. If you receive assistance from an agency and it manages funds allocated for you, it may agree to set aside a certain amount of money to be used for home maintenance. Depending on the age and condition of your home, $50 to $100 per month is usually adequate. Again, your planning team may be helpful in assisting you as you prepare for long-term maintenance and repairs.

Like most homeowners, you probably would like to make some changes that will make your house more comfortable and attractive. You may wish to add a deck or porch; install a hot tub, air conditioner, or fence; establish a garden or plant trees; or change the color of your house. As with routine maintenance, it is important to plan for these improvements.

Along with owning a home comes the responsibility of paying property taxes, which are guaranteed to increase at some point. Even if you have an escrow account for your taxes, it is critical to establish a fund to cover any increase in your tax bill.

Having a cash reserve for all of the situations we have discussed will help to prevent emergency situations, reduce the amount of worry associated with being a new homeowner, and make your experience in your new home all that you hope it will be.

By now, you and your planning group have spent many hours thinking about the amount and type of assistance you will need in your new home. This assistance may look very different from what you have been receiving in your current living situation. Having a detailed plan about how you will receive the assistance you need is an ongoing task. You must think about your future needs, as well as your immediate requirements, and be prepared to re-design your assistance plan as your needs and desires change.

You may want to ask yourself the following questions:

• Do I have adequate personal assistance? This means that you will be able to do everything you need to on a day-to-day basis, such as taking care of personal care needs, receiving assistance at your job, maintaining your home, shopping, cooking, eating, communicating, paying bills, caring for pets, maintaining relationships with friends and family, and participating in community activities.

• Am I prepared for emergencies? If you plan to live or spend time alone in your home, you must have a plan for handling emergency situations. You may arrange with a neighbor to help if you need to get out of your home, or go to the hospital, or to be "on-call" for crises. Another approach is to arrange for someone to carry a beeper providing you with continuous access to assistance if you need it. If you have difficulty moving about or communicating, notify your local fire and police departments of your location. If there is an emergency, they will be able to provide you with the fastest and most appropriate assistance.

• Have I considered all of my transportation needs? As much as you may love your new home, it can feel like a prison if you do not have access to transportation. Be sure that you have a plan in place for transportation. Consider whether you will use public transportation, purchase a vehicle, ask for help from neighbors or co-workers, or hire someone to provide you with needed transportation.

There are a number of people facing similar barriers who have successfully purchased homes. Make a point of finding out how they accomplished their goal. How was the planning organized? Where did they obtain financing? What does their personal assistance consist of? While you will have your own unique barriers and challenges to deal with, you can probably learn from the mistakes and achievements of others.

The people who have agreed to be part of your planning group will bring their own experiences, knowledge, and personal contacts to the team. Don’t overlook these group members as you search for people who have particular talents and expertise. You should always be asking, "Who do I know who could help?"

If your application is turned down, you will want to find out why, so you can do whatever needs to be done to correct any problems. In doing so, you will have the best possible chance of getting a mortgage in the future.

A lender must explain in writing why it made the decision to deny you a loan. Talk to the loan officer to find out the specific reason(s) why you did not receive the loan you requested. There is a possibility that your lender may reconsider your application. If not, ask what you can do to improve your chances of getting a mortgage in the future. Finally, being turned down by one lender does not mean that other lenders will reject your application. Don’t give up!

Let’s take a look at some reasons a loan may be denied.

Insufficient funds. Make sure that you have looked at all the sources of assistance reviewed in previous chapters. Have you overlooked any programs that could help with down payment or modification expenses? Is there a family member who might be willing to help out with the closing costs? You might try to persuade the seller to finance a second mortgage, which would reduce the amount of down payment money you would need. A Lease-Purchase Mortgage Loan (rent with the option to buy) may eliminate the problem of insufficient savings for a down payment.

Insufficient income. The qualifying formula the lender uses may show that you can’t afford the house you want to buy. Be sure to point out any unusual circumstances, such as the fact that your rent is as high as the mortgage payment would be, or that the agency that provides you with assistance has committed funds for rehabilitation, ongoing maintenance, property taxes, or property insurance.

Too much debt. You may owe too much money for the lender to feel comfortable giving you a loan. If you are very close to qualifying, you may be able to convince the lender to reconsider, especially if your credit history is good. Otherwise, you will need to pay off some of your bills before buying a house, or choose a less expensive house.

Poor credit rating. If a lender refuses to give you a loan based on a negative credit report, you are entitled to get a free copy of the report from the credit reporting agency. You may challenge any mistakes in the report and insist that the agency include your comments about any unresolved disputes in its report. If you used a nontraditional credit report to apply for a loan, you might want to ask a non-profit housing group to help present the documentation more favorably.

If your credit is poor, you should start paying back your debts. Once you have improved your credit profile, you may be in a better position to start looking for a house again. To contact the Consumer Crediting Counseling Service (CCCS) organization closest to you, call 1-800-388-2227. These agencies offer assistance in repaying your debts. For example, they may be able to negotiate with creditors for more affordable repayment terms. It may take months or even years to repair your credit record, but this does not mean that you will never be able to get a loan. You may have had a poor credit history and then took steps to pay off your bills. If you have cleared up your debts and stuck to a budget, a lender will take this into account.

Low appraisal, poor condition of the property, or illegal zoning items. Your application may have been rejected because the property appraisal was lower than the agreed-upon purchase price. If this is the case, you might be able to negotiate with the seller again for a purchase price the lender would agree to finance. If the appraisal is low because repairs are needed, the seller may agree to fix the problem before the sale of the house. The lender may also agree to the loan if the seller agrees to set aside funds in an escrow account for the repairs to be completed after the sale.

A "zone" is a specific section of land, such as a neighborhood. Zoning laws dictate how the section of land is to be used. For example, neighborhoods are usually designated as "residential" areas. It is typically illegal to operate a business in a residential area. If the property does not meet the legal requirements for that neighborhood, these zoning issues will need to be corrected before the house can be sold.

Report suspected discrimination

The Equal Credit Opportunity Act and the Fair Housing Act prohibit discrimination against a loan applicant because of sex, race, age, color, religion, national origin, disability, marital status, or receipt of public assistance.

If you are a woman, you have a right to establish your own credit, based on your own credit records and earnings. The lender will include all of your income, such as documented child support and alimony payments (if you choose to disclose them) and part-time employment.

If you think a lender has denied your loan application unfairly (for example, because you have a disability), you should report your complaint to the lender’s regulatory agency or to HUD, the agency responsible for enforcing the Fair Housing Act.

As a reminder, here are some questions you may want to ask yourself:

• Have I looked into all of the loan possibilities available to me?
• Have I used my planning team and housing counselor/education provider to help with research, contacts, referrals, and advice?
• Have I approached more than one lender in applying for a loan?
• Do I have a well-documented credit history, with appropriate recommendations from landlords or others to whom I have made payments?

If you have done your homework and have taken advantage of all of the advice and guidance available to you, you will have the greatest opportunity for owning the house of your dreams!