Application Process

The mortgage application process is the foundation of loan origination. As a Mortgage Loan Originator (MLO), you'll guide borrowers through this critical first step, ensuring all required information is collected accurately and completely.

The Uniform Residential Loan Application (URLA/Form 1003)

The Uniform Residential Loan Application, commonly known as Form 1003 or URLA, is the standardized mortgage application form required by Fannie Mae and Freddie Mac. This form serves as the primary document for collecting borrower information and initiating the loan process.

Form 1003 Redesign (2020)

The URLA was significantly redesigned in 2020 and became mandatory for use on March 1, 2021. Key changes include:

Key Sections of Form 1003

The URLA is organized into 10 main sections:

1. Borrower Information - Personal details, Social Security number, date of birth, citizenship status, contact information
2. Financial Information - Assets and Liabilities - Bank accounts, investments, debts, and other obligations
3. Financial Information - Real Estate - Property owned, mortgages, rental income
4. Loan and Property Information - Loan amount, property address, purpose (purchase, refinance, construction)
5. Declarations - Legal questions about judgments, bankruptcies, foreclosures, lawsuits
6. Acknowledgments and Agreements - Borrower certifications and authorizations
7. Military Service - Veteran status for VA loan eligibility
8. Demographic Information - Race, ethnicity, sex (voluntary HMDA data)
9. Loan Originator Information - MLO details, NMLS ID, company information
10. Continuation Sheet - Additional space for complex situations

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Required Documentation

As an MLO, you must collect specific documentation to verify the information provided on the application. The documentation requirements vary based on the borrower's employment type and financial situation.

Income Verification Documents

Income documentation is crucial for determining a borrower's ability to repay the loan. Required documents typically include:

For W-2 Employees:

• W-2 forms - Most recent 2 years from all employers
• Pay stubs - Most recent 30 days (must show year-to-date earnings)
• Tax returns - 2 years of complete federal returns (for complex income situations)

For Self-Employed Borrowers:

• Personal tax returns - Complete 2 years with all schedules
• Business tax returns - 2 years (for corporations, partnerships, or LLCs)
• Year-to-date profit and loss statement - Prepared by the borrower or accountant
• Business license - Proof of business operation
• CPA letter - May be required to verify business viability

For Other Income Sources:

Asset Documentation

Assets demonstrate the borrower's ability to make the down payment, cover closing costs, and maintain reserves. Required documentation includes:

• Bank statements - Most recent 2-3 months for all checking and savings accounts
• Investment account statements - Brokerage, retirement accounts (401k, IRA)
• Gift letter - If using gift funds for down payment, with documentation of transfer
• Large deposit documentation - Explanation and source documentation for any deposits exceeding 50% of monthly income

The Paper Trail Requirement

Lenders require a clear paper trail for all funds used in the transaction. This means:

1. All deposits must be traceable to a legitimate source
2. Gift funds must be documented with a gift letter stating no repayment is required
3. Large or unusual deposits require written explanation with supporting documentation
4. Funds cannot be sourced from undisclosed borrowing

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Employment Verification

Employment verification confirms that the borrower has stable income to repay the mortgage. This is typically done through a Verification of Employment (VOE) form or third-party verification services.

VOE Requirements

The VOE must verify:

• Current employment status
• Job title and position
• Date of hire
• Current salary or hourly rate
• Year-to-date earnings
• Probability of continued employment (sometimes requested)

Timing Requirements

Critical timing rule: Employment must be verified within 10 business days of closing. If the closing is delayed, re-verification may be required.

Employment Gaps

Borrowers with gaps in employment history must provide:

• Written explanation of each gap
• Documentation of income during gap periods (unemployment benefits, severance)
• Evidence of current stable employment

Verbal Verification of Employment (VVOE)

In addition to the written VOE, lenders typically require a verbal verification of employment within 3 business days of closing to confirm:

• The borrower is still employed
• There are no pending changes to employment status
• Income remains consistent with application

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The Application Interview

As an MLO, you'll conduct an application interview with each borrower. This interview serves multiple purposes:

Interview Objectives

1. Gather accurate information - Ensure all form fields are completed correctly
2. Explain the process - Set expectations for documentation requirements and timeline
3. Identify potential issues - Discover credit problems, employment gaps, or unusual situations early
4. Recommend appropriate products - Match the borrower with suitable loan programs
5. Collect required disclosures - Provide required notices within mandated timeframes

Important Interview Topics

During the interview, you must address:

• Loan purpose - Purchase, refinance, cash-out refinance, construction
• Property type - Primary residence, second home, investment property
• Property use - Owner-occupied, rental, vacation
• Occupancy status - Will borrower live in the property?
• Credit history - Any recent late payments, collections, bankruptcies?
• Employment changes - Any job changes planned?
• Unusual income - Cash income, irregular bonuses, commission structures

Red Flags to Watch For

MLOs must be vigilant for signs of potential fraud:

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Application Disclosure Requirements

Within specific timeframes, you must provide borrowers with required disclosures:

Within 3 Business Days of Application

• Loan Estimate - Detailed estimate of loan terms, projected payments, and closing costs
• List of Homeownership Counseling Organizations - HUD-approved counseling agencies
• Special Information Booklet - "Your Home Loan Toolkit" from CFPB (for purchase transactions)

Other Required Disclosures

• Right to receive appraisal copy - Borrower entitled to copy at least 3 days before closing
• HMDA notice - Information about how demographic data will be used
• Credit score disclosure - If credit score used in decision, must be disclosed

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Key Terms and Concepts

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Exam Tips for Application Process

For the SAFE MLO Test, remember:

• The URLA/Form 1003 is the standardized application - know its sections
• 2 years of income documentation is standard for most borrowers
• Self-employed borrowers require additional documentation including business tax returns
• Employment must be verified within 10 business days of closing
• All funds must have a documented paper trail
• The Loan Estimate must be provided within 3 business days of application
• Gift funds require a gift letter stating no repayment is expected