Home Loan Application 101

Borrowing basics for first-time homebuyers.

Applying for a home loan is a task many first-time homebuyers regard with apprehension and uncertainty. If you’re in the market for rural property, chances are you may have additional uncertainties about securing mortgage approval.

Frontier Farm Credit answers five frequently asked questions to help guide you through the home loan application process.

  1. What red flags do lenders look for?
    High levels of debt coupled with little savings is one of the most common red flags lenders see in home loan applications, and because maintaining rural property generally requires additional labor and expenses, homebuyers need to think ahead about the costs of country living. It’s tough to buy an acreage and start out with no cash.

    Other oversights may include gaps in employment, failing to disclose debt, ignoring past credit issues or providing incomplete bids when seeking financing for new home construction.

    Homebuyers should always be up front about their financial history to help their lender get a better grasp of their situation. Character goes a long way when it comes to loan approval.

  2. What documentation is required?
    To begin a country home loan application, homebuyers should be prepared to provide basic information about the property and the purpose of the loan, as well as proof of income. Financial documents needed for a credit decision include the past two years’ tax returns, a most recent paystub and an updated balance sheet.

    When applicable, it is also beneficial for homebuyers to share additional information such as the purchase agreement, a copy of the land survey or future plans for the property.

    For example, for homebuyers who farm or generate income from agricultural property, it pays to anticipate and account for changes in an operation.

  3. How is loan approval determined?
    Once a home loan application is submitted, an underwriter will manually review the file, calculate debt-to-income ratios and analyze credit risk.

    Frontier Farm Credit’s lending and underwriting team is made up of experienced, local professionals who practice hands-on loan processing. This team structure allows for direct lender-to-underwriter communication and quick resolutions when questions arise.

  4. What’s the difference between fixed, variable and adjustable rates?
    Another important aspect of the home loan application process includes working with a lender to select the mortgage rate that’s right for the homebuyer.

    Frontier Farm Credit advises homebuyers comparing their options to ask themselves questions such as ‘How long do I plan to stay in the home?’, ‘How secure is my job?’ and ‘What are my monthly payment goals?’.

    A variable rate is ideal for homebuyers who are willing to take on a high level of short-term risk and who have access to cash and investments they can liquidate quickly to pay off the loan. Whereas a fixed rate would apply to homebuyers who may be risk-averse or doesn’t have a large capacity for income fluctuation. They may have future plans to expand their farm or start a family.

    An adjustable rate, also known as an interim-fixed rate, is one of Frontier Farm Credit’s most popular rate products. This option is ideal for homebuyers who pay aggressively on debt or prefer to take a lower rate over a longer period of time.

  5. How long does it take to close a mortgage loan?
    On average, underwriting is completed in a window of 24 to 48 hours while total loan processing may take anywhere from 30 to 60 days from the date of application to closing. The more organized and thorough the application, the shorter the processing time.

    Before submitting a home loan application, homebuyers should do their homework, research building costs if applicable and consider their debt payments with taxes, interest and insurance included before applying. Above all, Frontier Farm Credit encourages all homebuyers to reduce debt and build savings.

Have questions about financing your rural home? Consult with the lenders who know the country. Click here for more information about rural home and acreage mortgages.