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There are ten sections to the 1003:

1. Type of Mortgage and Terms of Loan

2. Property Information and Purpose of Loan

3. Borrower Information

4. Employment Information

5. Monthly Income and Housing Expense Information

6. Assets and Liabilities

7. Details of Transaction

8. Declarations

9. Acknowledgment and Agreement

10. Information for Government Monitoring Purposes

Section I: Type of Mortgage and Terms of Loan

The very first thing the 1003 asks is what type of mortgage your clients are applying for, be it conventional, FHA, VA, or other. Many consumers won’t know which type they need or if they’re eligible for one or more of these types. That’s okay, just put in the loan type you’re more inclined to if they haven’t decided. If your client is eligible for a VA loan, there will be a tad more paperwork to complete, with ‘‘VA’’ stamped all over it. There are also two boxes labeled ‘‘Agency Case Number’’ and ‘‘Lender Case Number’’ These boxes are reserved for FHA use, and the lender will fill them in later on. They’re really of no significance to you.

This section also has places for you to note whether the interest rate on the loan is fixed or adjustable (or, of course, ‘‘other’’), the term of the loan (how many months or years), and the requested loan amount. This part of the 1003, as is true of the other sections, can be changed throughout the application process, so if your borrowers check the ‘‘fixed rate’’ box and change their minds later, you won’t need to complete a new application. Just make the changes needed.

Section II: Property Information and Purpose of Loan

This section asks for details about the property your clients want to buy. First is the address of the property. You can leave it blank if your borrowers haven’t found a house yet, or you can put in something like ‘‘123 Main Street’’ just to get an address into the system. This section also asks for the number of ‘‘units’’ the property has (i.e., if the property is a single-family house or if it’s a multiunit property, like a duplex) and the year in which the property was built. There is an area for the legal description of the property. The borrower or lender typically doesn’t know the ‘‘legal’’ early on, so you’ll probably leave this box blank. A legal reads something like ‘‘Lot II, Section A, 123 Main Subdivision.’’ You will get this information from the agents, from the title company, or from an attorney involved in the transaction. Some Automated Underwriting System (AUS) programs require a property address to get a preapproval; if this is your case, use a simple ‘‘123 Main Street, Anywhere USA.’’

This section also asks if the borrowers will use the loan to refinance another loan, purchase property, or even fund construction. The borrowers must also indicate whether they will live in the property, use it as a second home, or use it as a rental or other investment property. If the borrowers need the loan to fund construction, they must disclose the costs of the land and the improvements as well as the amount of any liens on the property. If the borrowers are refinancing an existing loan, they must disclose when they bought the property, what they paid for it, the amounts of any existing liens, why they’re refinancing, what improvements were or will be made to the property, and the cost of those improvements.

The final part of this section asks how your clients are going to hold title, be it individually or along with someone else, and if they’re going to own the property ‘‘fee simple’’ (which is outright ownership of both the land and the home), or ‘‘leasehold’’ (where they may own the home but the land is being leased).

How can someone buy a home on someone else’s land? Well, leaseholds can benefit both parties when the lease period is for an extended period of time, say 99 years or so. This sounds odd, but it is not as uncommon as you think in areas where Native American tribes may own land that has been developed with houses, shopping malls, and the like. More than likely this will never be an issue for you. The last thing to fill out in this section is the borrower’s source of the down payment and other key up-front costs.

Section III: Borrower Information

This section is about the borrower. It is the ‘‘meat’’ of the application and identifies who your clients are—their legal names, social security numbers, and where they live. This is the most personal part of the application because it’s used to check the client’s credit and verify the client’s address, age, marital status, and phone number. Your client’s age is important because people have to reach a certain age before they can execute sales contracts. Age can also help identify a borrower (someone who is 18 years old shouldn’t have credit lines on his credit report that are 20 years old, for example). Sometimes the age question sounds like a loan-approval question, but the fact is that it’s illegal to discriminate based upon how old a borrower is.

This section also asks how many years of school your clients have had. For the life of me I’ve never understood why this is part of the 1003, and I’ve never been given any good reason. It seems to be a carryover from older loan applications used to predict future earnings. If an applicant has graduated from law school, for example, an underwriter might let the new graduate borrow a little more money because of his or her earnings potential. But is a person with a GED somehow less creditworthy than someone with a Ph.D. and an MBA? Hardly. But this box is still there; you or your clients can fill in that information if you want to, but it really doesn’t matter one way or the other. It might mean something if you put in just 12 years of school but claim that your borrower is a doctor or a dentist—the borrower would need to explain how he accomplished such a feat. Don’t worry that your clients will be rejected based upon the number of years they’ve gone to school.

The final section is reserved for the number of dependents. This information really only applies to VA loans that require household and residual income calculations, but again it isn’t something that is used to approve or deny a loan request. If your clients have lived at their current address for less than two years, you’ll need to ask them to provide a previous address. But that’s really about it. No pint of blood or first-born offspring required, but this section nails down exactly who your clients are and where they’ve lived.

Section IV: Employment Information

Now that you know who you your clients are, you want to make sure they have a job and a good work history that details how long they’ve been working and for whom they work (or whether they’re selfemployed). This section asks for their employers’ names, addresses, and phone numbers. You or your loan processor will contact them— either by telephone, by letter, or even by e-mail as long as the e-mail addresses can be verified—and ask them to verify how long your clients have worked there, what their job descriptions are, and how much money they make.

You’ll notice there are two separate boxes about length of employment; one box asks for ‘‘Years on this job’’ and the other asks for ‘‘Years employed in this line of work or profession.’’ Lenders look for a minimum of two years at the same job as a sign of job stability. They also like to see someone in the same line of work for more than two years for the very same reason. But don’t worry if your clients have not held the same job for two years as long as they’ve done the same or similar line of work somewhere else.

Has your borrower been laid off because of an economic downturn? Document the dates and reasons for the time not worked. If she’s been a store manager at her current job for six months, all you need to do is document the previous jobs for at least another 18 months to make up the two-year minimum. There are additional boxes for previous employers, their contact information, and the borrower’s earnings from these old jobs. Finally, the borrower must provide information about his or her job title, the type of business he or she is in, and whether he or she is self-employed.

Section V: Monthly Income and Housing Expense Information

This section is easy enough. It asks how much money your clients make and how much they are paying for housing now (whether it’s rent, mortgage, or living payment-free). The income portion is divided into six sections plus the now-famous ‘‘other.’’ Here you enter the borrower’s base salary, commissions, bonuses, interest or dividend income from investments, overtime earnings, and any rental income the borrower might have from other real estate. Below this section there is an area to describe ‘‘other’’ income. This could be anything that’s verifiable, such as child support or alimony payments, interest income, or lottery winnings.

The housing expense portion asks about the borrower’s current rent or mortgage payment, monthly property taxes, hazard insurance payments, homeowners association dues, or mortgage insurance. It also asks for the same information on the property the borrower is attempting to purchase.

Section VI: Assets and Liabilities

This section covers the borrower’s bank accounts, investment accounts, IRAs, or whatever other financial assets the borrower might have. Don’t let this section intimidate you. Just because there’s a space for ‘‘Life Insurance Net Cash Value’’ or ‘‘Vested Interest in Retirement Fund’’ doesn’t mean that borrowers have to have either of these to get a home loan. They don’t. They simply need enough money to close the deal.

The very first box describes the borrower’s very first asset involved in the transaction: the ‘‘earnest money’’ or deposit money that he or she gave along with the sales contract. If the borrower gave $2,000 as earnest money, this will be the first money put into the deal. The lender wants to know how much your client gave as earnest money and who has it. It’ll include those funds in the borrower’s down payment. The next four sections are for the borrower’s bank accounts, be it checking or savings, and for related account information, such as account numbers and current balances. It’s not necessary to complete every single box or divulge every single account the borrower might have. Typically lenders only care about having enough money to close the deal and less about what the borrower’s IRA balance is. The only time other balances come into question is if the lender asks for them as a condition of the loan approval. These extra funds are called reserves. Reserves are best described as money left in various accounts after all the dust has settled, including the down payment and closing costs. Reserves can sometimes be a multiple of the monthly mortgage payment, such as ‘‘six months worth of housing payments,’’ and they must be in accounts separate and apart from the transaction.

Reserves can also beef up a borrower’s application if he or she is on the border of obtaining a loan approval. A lender who is a little squishy on a loan may want to see some other aspects of the borrower’s financial picture before issuing an approval. Reserves are an important criterion for many loans, but it’s up to you to ask the lender if your borrowers in fact need to document absolutely everything in their financial portfolios or just enough to close the deal.

This section also asks for other real estate the borrowers might own, and there is even an area to list the type and value of their cars. I’m serious. Again, this is a holdover from earlier loan applications, but if you leave this section blank, an underwriter might want to know how your clients get to work and back. Finally there are the ‘‘other’’ assets. Historically this might mean expensive artwork or jewelry, but this too is an unnecessary question, so don’t worry about leaving this box blank as well.

Next to the assets is the liabilities section, where the borrower lists his or her monthly bills. This section is only for items that might show up on a credit report, such as a car loan or credit card bill. It doesn’t include such items as electricity or telephone bills. Don’t worry if your client can’t remember the exact balances or minimum monthly payments required, just tell the client to give a best estimate. The lender will fill in the application with information taken from the credit bureau later on. If the borrower owes child support or alimony, there’s a place for that, too.

Section VII: Details of Transaction

This is the most confusing piece of the application, so much so that most borrowers leave it blank and let a lender or loan officer fill it in. In fact, most loan officers don’t fill it in; they let their computer programs do the work for them.

This section provides an overview of your particular deal, showing the sales price of the home, the down payment amount (if any), the closing costs, and any earnest money held anywhere. It then shows how much money your client is supposed to bring to the closing table. Note that this is just an overview and not the final word on the loan amount, costs, etc. It’s simply a brief snapshot of the transaction. Believe me, you’ll get reams of paper on this topic in other documents.

Section VIII: Declarations

These are 13 statements to which the borrower answers yes or no. They ask such things as, ‘‘Are there any outstanding judgments against you?’’ and, ‘‘Are you a party to a lawsuit?’’ and so on. Here the borrower will also state whether he or she has declared bankruptcy or had a foreclosure in the past seven years. (Actually, there is no such thing as a seven-year requirement for bankruptcies and foreclosures for conventional or government loans anymore; this is another carryover from older application processes. Nowadays, bankruptcies and foreclosures generally affect loan applications only if they’re two to four years old.)

Section IX: Acknowledgement and Agreement

This is a long-winded, obviously lawyer-written area where borrowers cross their hearts and hope to die that what they put on the application is true, that they agree to have the home secured by a first mortgage or deed of trust, that they won’t use the property for illegal purposes, that they didn’t lie, and so on. They sign the loan application in this section and date it.

Section X: Information for Government Monitoring Purposes

This optional area exists thanks to the Home Mortgage Disclosure Act—or HMDA (HUM-duh)—and is referred to as the HMDA monitoring section. It asks optional questions about the borrower’s race, national origin, and gender. The answers don’t affect loan approval, and borrowers don’t have to fill this out if they don’t want to. However, the government requires loan officers to make a best guess as to ‘‘guy or girl’’ or ‘‘black, white, Pacific Islander’’ or whatever if a borrower opts not to provide this information. The information helps the federal government monitor the approval rates for various classes and races of borrowers to see if a bank or lender is discriminating based upon race, color, or creed. After all, how does the government know such things if it’s not told?

For example, the Community Reinvestment Act, or CRA, requires lenders to make a certain percentage of their mortgages in specific geographic areas. The HMDA disclosures might identify certain lenders that aren’t making loans where the community may need them most.