Applying for a mortgage can seem incredibly daunting at first glance. A stranger asking personal questions about your finances and long-term goals? Sounds pretty scary to us. The truth, however, is much less frightening than the internet makes it out to be.
Your lender, who may start out as a stranger to you, will be part of your home buying dream team throughout the entire process. They’re here to act as your financial guide and advisor, and though the process may get stressful at times, they have your best interest in mind.
We’ve compiled a list of frequently asked questions by lenders for borrowers, so you can get a better understanding of what to expect.
Employment and Income
When a lender grants you a loan, they are essentially saying that they trust you to have the funds to pay them back. Your employment history, income, and plans all matter to your lender.
A lender may ask:
- Where do you work?
- Are you self-employed?
- How long have you been with this company? In your current role?
- How much do you make?
- Are you salary-based or working with an irregular income? (Think contract work, artists, temp jobs, etc.)
- Do you receive any additional funds outside of your income, such as child support or Social Security?
Paperwork Involved: You will be asked to provide your two most recent paystubs and copies of your W-2s. You may also be required to provide your tax returns, especially as a self-employed borrower.
Your credit score is an easy-to-read sign of your creditworthiness and ability to repay your mortgage. If you have a history of late payments, or worse, missing multiple months of payments, your score will reflect this.
While there are loans that accept a lower credit score, there are usually additional fees that must be paid. Before you begin the loan application process, it’s in your best interest to check your score and review the report for any disputable errors. Your lender will ask about your credit history.
Debt, Savings, and Assets
Some debts, such as a car loan or student loans, are often unavoidable and can actually help your credit if you pay them off on-time. However, your lender needs to know the full scope of your debts, savings, and assets to provide you with the ideal loan for your needs.
Your lender will likely ask:
- How much do you have saved in retirement funds, stocks, bonds, mutual funds, investment accounts, etc.?
- How much money do you have in the bank?
- What recurring debts do you have? (This could be a car loan, alimony, credit cards, or student loans.)
- What additional assets do you have, not mentioned above?
Down Payment and Loan Usage
It’s a mortgage myth that borrowers must have put down 20% to purchase a home. Some loans require little-to-no down payment for qualifying applicants. With that in mind, your lender still needs to know just how much you can put down on a home.
Here are a few questions you can expect from your lender:
- Are you borrowing to buy or refinance your current mortgage?
- Do you plan to live in the home year-round?
- How long do you plan to live in the house?
- What type of house is it? (Single-family, townhouse, condo, etc.)
- How much do you plan on putting down?
- Are you using any gift funds?
- Will you need to make renovations?
If you work with a lender before finding a home, you’ll have a better idea of how much house you can afford. However, if you find a house first, your lender may have specific questions about the property, such as location, size, and other details.
These are just of the few basic questions your lender will ask. As you get further into the process, the questions will become more specific to your situation. At the end of the day, your lender is here to help, so ask any questions you have, as well.