When you meet your mortgage lender for the first time, it might feel as if you are meeting your future mother or father in-law with all of the questions getting thrown at you. By the time you step out of the office, you will likely feel like you have zero secrets left to share.
Many of the questions that are asked are required as part of your application process and although you don’t have to answer every question, avoiding certain questions can slow down the application process.
Remember, the number one reason a good lender asks detailed questions is so they can ensure your mortgage documents are prepared correctly; not because they want to know all of your dirty laundry.
Mortgage lenders know that when they have all of the information required in advance that it helps expedite the process, which makes everyone happy. What they are doing is saving time and effort on the front end, versus going back and forth with you on the back end.
When going into unknown territory or event, it helps to know what to expect. During the mortgage loan process, it’s important to know what questions can and cannot be considered as a part of the lender’s decision process.
The Equal Credit Opportunity Act (ECOA) prohibits discrimination in any aspect of a credit transaction, including, but not limited to race, religion, nation of origin, sex, marital status and age (provided the applicant has the capacity to contract).
You can expect questions like the following:
“What’s your marital status?”
No, your lender isn’t asking for your hand in marriage. Your marital status is important because of the many factors that can impact your debt; situations like paying or receiving alimony or child support could impact underwriting.
Asking a person’s marital status is also a valid question because each state has different rules about how married persons title their homes.
Also on the table in regards to marital questions, whether you previously married but are now divorced, it is legal to be asked by your lender for a copy of your divorce decree.
There are currently nine “community property” states, including Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In “community property” states, debts of both spouses must be considered when applying for a government supported mortgage, even if the application is in the name of only one spouse.
“How many children do you have?”
Hold onto your britches because it’s only going to get more personal from here.
Household size is also fair game to be asked about. You should be prepared for your lender to ask if you have children, how many and their ages.
This is important information for the lender because the household size and residual income help determine eligibility for the different loan programs that you may qualify for.
These answers help your lender get the most bang for your buck and know that your lender is actually trying to get you qualified for the best loan that works for your family size.
“How much debt do you have?”
Your lender is interested in knowing what your debt to income ratio is. This information is vital to your lender because they need to determine what percentage your debt accounts for.
Experts recommend that your debt should account for less than 45-55% of your total gross income (including your new housing payment).
“Where do you work and how much money do you make?”
Talking about money makes most people feel uncomfortable. Just remember your lender is doing their due diligence and it is their responsibility to do a deep dive into your finances.
If you put the shoe on the other foot, how would you feel about asking to borrow hundreds of thousands of dollars from someone and for them not to want to know who they were borrowing to?
In addition to being prepared to talk about money with your lender, you should also know that you will be asked to provide proof. Your lender will probably request financial documents like copies of income tax statements and if you are issued a paycheck be prepared to provide copies of pay stubs and W-2s.
Every question on the docket regarding your income is on the table, so get used to questions like how long have you been at your job and how you get your income and if you have a steady salary or irregular income? Think self-employed or if you have a more traditional job.
“What is the purpose of your loan?”
There will certainly be more inquiries as the loan process continues. If you weren’t comfortable talking about money, the questions about the purpose of your loan will sound like a breeze.
Expect questions regarding your loan, such as:
Are you borrowing to buy a new home or to refinance a current mortgage?
Is the loan for an investment or vacation property?
Do you plan to live in the house year-round?
Is it a house, duplex, condominium or co-op?
These questions might want to give up on the entire idea of buying a home, and you will likely ask yourself, “Is this all worth it?”
You have the right to ask your lender why they are asking for the information, but remember there is always a reason for the question.
Your mortgage professional will always be available to answer any question you have about the mortgage process and should be forthcoming every step of the way.
The Certo Team 55 N. Arizona Place Suite #103 Chandler, AZ 85225 602-429-6789
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