Mortgage lenders applicants anticipate being required to prove their income, confirm their employment, and grant consent to examine their tax returns. Still, lenders nowadays require more information to questions beyond borrowers’ scope.
The exact location of every dollar within your bank account might seem like a lot. However, lenders need to document every aspect of the financials of a prospective borrower to prove to the underwriters that borrowers can pay back the loan.
KEY TAKEAWAYS
- The type of questions mortgage lenders may ask prospective applicants have changed over time, and the present questions could appear more intrusive than the ones that certain borrowers expect.
- Candidates are likely to be asked about employment past, assets, income, debts, and credit histories since these kinds of inquiries are not uncommon.
- However, mortgage lenders are legally permitted to inquire about the applicant’s race and divorce or marital status and if the applicant is involved in the course of a lawsuit.
- Certain subjects are off the table. The lender cannot inquire whether you plan to have a child. They are also not permitted to inquire about your physical health.
Questions You Should Expect From a Lender
Job History
Most lenders will require an employment history for two years and will require a person with whom your employment can be confirmed. Sometimes, lenders might require a copy of your college transcript or diploma to prove that you attended school when you stated you were.
Income
Usually, two paystubs from the last few months are required. However, certain lenders may also require the return of tax forms, particularly when employed as self-employed. Uncertainties in your income could trigger additional questions, particularly when your earnings have decreased due to a reason, such as reducing a reward or commission. If you receive the child’s support, Social Security, or other benefits that aren’t wages, you’ll have to document that the income will not stop.
Assets
Lenders need to be aware of where their assets come from to be sure they’re not borrowing money from a person to make to make the deposit. Gift letters are mandatory and must comply with lender requirements when you receive assistance purchasing your home.
Debts
Your outstanding debts will be reported in the credit score and reflected as a part of the income-to-debt ratio. It is a good idea to look over the details of your financial history before you apply to get a mortgage since any debts that are disputed or ones you believe have been paid back will require evidence and could require the removal of your credit report before you can be eligible for a credit.
Credit History
Your credit rating is indeed an essential part of your application for a loan. However, lenders also examine your credit report to look for any credit inquiries and previous credit issues. If you have a lot of recently filed credit inquiries, lenders might ask you if you’ve had other loans taken out or have a new credit card yet to appear on your credit report.
Unexpected Lender Questions That Are Still Legal
Ethnicity
To not treat people differently because of their ethnic background, there is a requirement by the Department of Housing and Urban Development (HUD) requires lenders to inquire about the racial background of the borrowers. 2 HUD will then examine the records of lenders to ensure that they aren’t regularly refusing to lend to minorities or charging them a higher fee.
Lawsuits
Although it could appear that the outcome of a lawsuit, particularly in the case of a plaintiff, should not affect your home loan, lenders are always required to verify whether they are involved in a lawsuit as a result of the possibility of costs and the chance of a judgment that is filed against the creditor.
Divorce
In particular, lenders are worried about the financial aspects of divorce due to the risk that a borrower might be held accountable for an ex-spouse’s debts. Also, when you attempt to incorporate child support or Alimony as income in an application for a loan, the lender will require evidence that the income will last.
Questions You Can’t Be Asked
While lenders could request anything from a borrower, there are two areas that lenders are not allowed to look into, such as the family plan and medical concerns. According to HSH.com, according to the Equal Credit Opportunity Act, lenders aren’t permitted to inquire whether you plan to start having a family.
In the past, the question was often employed to make it harder for female loan applicants due to the assumption that lenders believed women were likely to quit their jobs when they got pregnant. However, you can be asked about the number of dependents you have and your marital status because this information can make you a first-time homeowner and also for loans under special programs with income restrictions.
In the Fair Housing Act and the Americans with Disabilities Act, lenders are forbidden from discriminating against those who are disabled or sick. Therefore, they aren’t allowed to ask questions about your physical health.
What are the things to avoid while applying for a mortgage?
The mortgage lender wants to know that you’ll always be able to repay the loan. Thus, any activities which suggest you may have difficulty repaying your loan are not recommended. Particularly, you shouldn’t switch your job, start a new business, buy a brand new car, accept any other long-term debt, open new credit lines, or go into bankruptcy.
In default on any payment in debt, co-signing a loan with anyone, or falsely presenting your financial position.
Can a Lender Ask If You Have Medical Issues?
The lender isn’t permitted to inquire about the condition regarding your medical condition. It’s among the few things that aren’t allowed to discuss, including whether you plan to have a child.
Why Do Mortgage Lenders Need Tax Returns?
Mortgage lenders require tax returns, usually for 2 years, to prove that you earn money, investments, and other assets you claim you have. Mortgage lenders may also ask for evidence of your employment and income in addition to retirement accounts.
The Bottom Line
Every borrower today must be ready to respond to nearly everything mortgage lenders ask; however, if you believe you are being asked untrue questions, you can ask your lender a few questions in return and seek out a different lender.