January 23rd, 2015 11:00 AM by Jackie A. Graves, President
Your lender won’t put you in an interview
room and demand answers, but completing a loan
application can feel like an interrogation. But
you’ll sweat only if you don’t know the answers to these 10 key questions:
1. Where’s your proof of income?
You should have proof of about two
years’ worth of income at the ready.
Come prepared with pay stubs, copies of checks, paid independent
contractor invoices, and other documents that verify your employment.
Be sure to disclose any other sources of income, including child
support or alimony.
2. What are your assets?
Your lender wants to know about any cash
reserves you have. A balanced investment portfolio demonstrates that your
investment planning and goals aren’t solely pinned on a home value
appreciation. They’re also resources that can be tapped in an emergency in case
you need money for a mortgage
3. What are your outstanding debts?
In general, the more debt you have the less
likely you are to get a mortgage. More debt also means you’ll likely have
to pay a higher interest rate on the money you borrow. The debt-to-income ratio limit on most mortgages is 43%.
The debt-to-income ratio measures how
much of your gross (before taxes) income is used to pay housing costs,
including principal, interest, taxes, insurance, mortgage insurance (if
applicable), and homeowners association fees (if applicable).
Other debt, including credit cards,
student loans, and car loans, will also affect your debt-to-income ratio.
4. What’s your credit score?
You should already know this, because you
should have already pulled your credit report and checked it. Before you
approach a lender, get your credit score
in the best shape possible by paying off
debts and disputing any discrepancies on your report. Even if it takes extra
time, it can save you thousands of dollars over the life of a loan. Get your
free credit reports from AnnualCreditReport.com.
5. Now that you are about to close, how’s your
When it’s time to close, your lender will
ensure you haven’t mucked up your credit or debt-to-income ratio.
Your credit report will be pulled again to make sure you haven’t opened any new
credit or added new debt.
From the moment you apply for a mortgage right
up until closing, don’t take on any new debt.
6. How much do you have for a down payment?
The larger your down payment, the more you will convince a lender that you take
homeownership seriously and won’t walk away when times get tough. Your down
payment will also determine if you can qualify for a mortgage, how much money
the lender will give you, and what interest rate you’ll receive.
7. How will you use this property?
Owning a home as the occupant comes with a
different set of regulations, qualifying requirements, rates, terms, and risks.
If you’re buying an investment property, let your lender know up front. To get you the right loan, your
lender needs to know what you plan to do with the property.
8. Are you involved in a lawsuit?
A lawsuit involving a financial judgment could
affect your financial position. If you’re in this boat, you’ll have to
prove why the judgment won’t harm you financially.
9. What are the details of your divorce?
If you are recently divorced, your lender will want to know about it. The
lender doesn’t need to know about any of the drama that led to a divorce,
only how it affected you financially.
10. What is your ethnic background?
This question isn’t discriminatory. It’s in
place for federal oversight, so the government cancrack
down on discriminatory lenders.
Craig Donofrio | Updated from an earlier version by Broderick
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