Why would a lender require a borrower to complete form 1003 in order to obtain a mortgage?

When you apply for a mortgage, dozens of documents are involved in the process. From paycheck stubs and previous years’ tax returns to bank statements and copies of your credit report, there’s quite a collection of information you’ll need to provide to your lender. In addition to that, you’ll also need to fill out more than a few forms to start and finish the process of obtaining your loan.

One form that you’re almost certain to see no matter where you apply for a mortgage is called Form 1003. It’s a standard application for getting a home loan, but you might also need to fill it out if you’re refinancing an existing loan. If you’re planning to start the homebuying or refinancing process soon, take a look at more about Form 1003, including what it is, what its purpose is and how you’ll fill it out.

Form 1003 is a standardized form that’s part of many mortgage lenders’ mortgage applications. Form 1003 was developed by Fannie Mae, and it’s the same as a Freddie Mac application document called Form 65. Fannie Mae and Freddie Mac are federal agencies involved with the mortgage industry that purchase mortgages from smaller lenders in an effort to stabilize housing markets across the United States. Form 1003 is also called the Uniform Residential Loan Application.

In 2021, lenders began to use an updated version of Form 1003. This new version is streamlined and easier for applicants to understand. You can complete the latest version of the form on paper or online. The updates include space for details about newer ways of contacting applicants, such as email addresses and cell phone numbers. There are also new sections where you can list the years you served in the military and tally up your household expenses. 

What Is the Purpose of Form 1003?

The main purpose of Form 1003 is to bring a new level of document standardization to the mortgage industry, but it goes a little deeper than that. When you’re applying for a mortgage, you have hundreds of choices about which lender to go with — there are plenty of national companies along with regional banks to select from. When you take out a mortgage loan, the financial institution that extends you the loan earns a profit from the interest you pay over the years.

Most mortgage loans have terms of 30 years, meaning they’ll take you 30 years to pay off. If mortgage lenders had to wait the entire 30 years for all of their customers to pay off their loans to start seeing a significant profit, they’d quickly run out of money. That’s one reason why lenders commonly sell mortgage loans to larger banks. Two of the most popular buyers of mortgages are Fannie Mae and Freddie Mac. When these agencies buy a mortgage from a smaller lender, that lender has more money to offer another customer a mortgage, and it didn’t take 30 years to save up that money. 

The process of selling a mortgage (or a large bundle of mortgages, which is a more common practice) to Fannie Mae or Freddie Mac is much easier when information about the homeowner and property is already recorded on the standardized form that these government agencies prefer. That document is Form 1003.

When Do You Fill Out Form 1003?

When you apply for a mortgage, you’ll need to complete Form 1003 two times. The first time will be on your application for the mortgage. After applying for a mortgage, you’ll receive a preapproval letter explaining the maximum amount of money the lender is willing to loan you.

Then, you’ll find a home, make an offer and have that offer accepted. A part of the closing process for buying your new home involves finalizing the terms of your mortgage loan. You’ll need to complete Form 1003 a second time during this step.

Depending on how fast you find a home, a considerable period of time can pass between your initial loan application and the purchase. You fill out the form a second time to capture any updates to your income, assets, liabilities or demographic information. When you fill out Form 1003 a second time, information about the home you’re purchasing is included on the form. The second copy of the form also includes detailed information about your mortgage loan terms. 

What Are the Sections of Form 1003?

A key goal of Form 1003 is to determine your creditworthiness. Lenders use Form 1003 to calculate your debt-to-income ratio. This is a percentage that compares the amount of money you earn to the amount of money you owe creditors. Lenders use it to determine whether you can comfortably afford to buy the home you’re looking at.

To calculate your income, Form 1003 has questions about your employment history. The lender wants to know where you work and how long you’ve worked there. Aside from money earned from work, there are also spaces to list other forms of household income, such as stock dividends or rental income. There’s space to tally your proposed monthly household expenses, including both the mortgage and other expenses like insurance. In the assets and liabilities section, you’ll list out the value of your major assets and monthly payments towards debts. This helps the mortgage company get a better idea of your financial status. 

Once you’ve chosen a home you want to buy, you’ll fill out the section of the form that asks for a detailed legal description of the property. There’s also a section for loan information that notes your loan amount, the type of loan you’re getting, the loan’s interest rate and the length of the loan. Form 1003 captures basic demographic information for everyone included on your loan application, such as your spouse. In addition to the basics like name, address and date of birth, the form also asks for your Social Security numbers. 

One of the final sections of Form 1003 is for declarations. In this section, you answer yes or no questions about your legal and financial standing. Citizenship status and the duty to pay monthly alimony or child support payments are some of the information included in this section. If any of the answers on the declarations section are yes, you need to attach a continuation sheet to your application on which you provide more details about the answer. 

Form 1003 is a standard part of the application process for obtaining a home mortgage loan. In addition to supplying key information about yourself to the mortgage lender, this form is an excellent resource for understanding the exact terms of your loan.

Buying a home is not a one-step process. Most of us start by learning about the world of real estate and assessing our financial options. Next, it's time to explore the first formal step in the home loan process: the loan application.

No matter where you apply for your loan, you will probably fill out the same form. Known as the Uniform Residential Loan Application (or the 1003, after its Fannie Mae form number), this five-page document provides a lender with the basic information needed to approve a buyer. It will include details about you, your finances and your future mortgage.

With ten different sections to fill out, these forms can often appear complicated and intimidating on first glance. However, a loan officer will almost always help you fill out your application, either over the phone or in person. Make sure you are familiar with the loan application before your conversation so you're ready to answer questions about your finances when working with the loan officer to fill it out.

Each section of the 1003 form is explained below to help you better understand what goes into a mortgage loan application. To get the most out of this information, open a copy of the current Uniform Residential Loan Application so you can follow along.

Section I: Type of Mortgage and Terms of Loan

This first section will ask borrowers to describe the loan program and amount for which they want to apply. The information in this section should match what you discussed with your loan officer and you will probably need their help to make sure you complete it correctly. If you haven’t found a property yet, the amount fields should show the maximum amount you want to borrow.

Section II: Property Information and Purpose of Loan

This section can be confusing due to the fact that most people have not even started looking for a new home when they fill out their mortgage loan applications. As a result, this section will often be left "to be determined."

If you have already found your dream home, you'll include the address and year it was built. You can find the year built by searching for the property on Pennymac’s Home Value Estimator and looking under the Property Details. You will need to indicate who will own the property and hold the title, as well as the source of your down payment, such as savings, cash or help from a first-time homebuyer program.

Section III: Borrower Information

The third section is quick and easy. All you need to fill in is your name, date of birth, address, telephone number, Social Security number and marital status. If you plan on co-signing this loan with anyone else, make sure to record their personal information too. If you've lived at your current address for less than two years, you'll need to provide your former addresses from the past seven years.

Section IV: Employment Information

Here, you will be required to provide proof of employment. This means submitting recent paycheck stubs and W-2 income tax forms from the last two years. This is necessary because lenders want to be able to verify your source of income in order to be certain you can make your mortgage payments and afford the other costs associated with maintaining your home.

If you haven't been at your current job for at least two years, you will need information on your past job and your loan officer will have you sign a Verification of Employment (VOE), which will be sent to your current and former employers to confirm your employment and earnings.

Section V: Monthly Income and Combined Housing Expense

In this section, you will need to detail all forms of income. You'll use your gross income, which is what you make before taxes and deductions. Make sure to include information regarding bonuses, commissions, freelance or 1099 work, child support, rental property payments, and other forms of income. In addition, you will be expected to enter your current rental or mortgage payment information under the "combined monthly housing expense" category.

As part of this section of your mortgage loan application, most lenders will require you to sign IRS Form 4506-T, which allows them to request a transcript of your tax returns.

Section VI: Assets and Liabilities

This section details your current financial health, or net worth. The two factors that need to be considered are how much you own (assets) and how much you owe (liabilities).

In order to paint a complete picture of your financial health, you will have to provide information regarding your assets, such as:

• Checking and savings account balances
• Retirement accounts
• Investments
• Other property you may own
• Automobiles

Next, you will be responsible for listing information about your liabilities. This includes any monthly debt payments resulting from:

• Credit cards
• Auto loans
• Student loans
• Student loans
• Child support or alimony

Section VII: Details of the Transaction

This section will list all of the important information associated with your new mortgage loan. It will detail the purchase price of your home, closing costs and the total expense of your mortgage loan (which will take into consideration principal, interest, and fees). At this point, many of these items are estimates, as they won't be finalized until loan closing. Your lender will likely help complete this section.

The most important thing you need to remember about this section is that you should double-check all costs. Make sure the details of the transaction agree with your current understanding of the mortgage and its terms.

Section VIII:Declarations

In this section, you will be asked to answer questions about any legal problems or other issues (past or present) that may affect your financial standing. For example, have you ever declared bankruptcy, gone into foreclosure or filed a lawsuit? This information, in addition to your credit report, will help your lender better assess your history and ability to successfully pay off a mortgage. This section will also ask if you're a U.S. citizen or a permanent resident alien. You can still obtain a mortgage if you are not a U.S. citizen as long as you have documentation showing legal residence in the United States.

Section IX: Acknowledgment and Agreement

You've completed the majority of the application and now all that's left to do is sign. By adding your signature, you're agreeing that the information you have provided is true and accurate.

Section X: Information for Government Monitoring Purposes

In this section of the application, you will be asked to provide your ethnic origin and race. This information will be used for government statistics. They want to be sure the United States housing finance system works fairly and meets the needs of every racial and ethnic group within the country.

Make Sure Your Mortgage Application Is Accurate

Before you sign your mortgage application, carefully review it to ensure it's complete and accurate. Beware of anyone offering to falsify information to qualify you for a loan. Whether it's intentional or not, an inaccurate application can be considered fraud. The FBI estimates that more than half the mortgage fraud cases they investigate involve fraud on the mortgage application. Check carefully that you or the loan officer has filled out the following information correctly:

• How much income you earn
• Where you work
• How much debt you owe
• Whether you'll live in the house or someone else will (loan terms are different for a house that will be your primary residence versus a rental)

The First Page of A New Chapter In Your Life

Filling out a mortgage loan application may not be exciting in and of itself but it is an important step in the journey toward owning your new home, one of the most important investments of your life. Providing your lender with a complete, accurate application ensures that you will be able to successfully close on the home you want with a loan you can afford. If you are ready to start moving down this life-changing path, contact a Pennymac Loan Officer today.

Jump to...