What Are Mortgage Lenders Allowed to Ask Borrowers?

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What Are Mortgage Lenders Allowed to Ask Borrowers?

Mortgage applicants anticipate being asked to demonstrate their income, confirm their job, and provide permission for the study of their tax returns, but these days, lenders regularly ask for more and more information, which may feel intrusive to borrowers.

Although it may appear excessive, lenders must record every aspect of an applicant’s financial situation in order to demonstrate to underwriters that the borrowers will be able to repay the loan.

Key Takeaways

  • The questions that mortgage lenders are permitted to ask applicants have evolved over time, and the present set of inquiries may appear more intrusive than some borrowers would want.
  • Since these kinds of queries are typical, applicants can anticipate to be asked about their employment history, income, possessions, debts, and credit history.
  • However, mortgage lenders are also permitted by law to enquire about an applicant’s race, marital status, likelihood of becoming divorced, and involvement in any pending lawsuits.
  • There are certain things that are taboo. It is illegal for lenders to inquire about your family plans. Additionally, lenders are not permitted to ask about your health.

Questions You Should Expect From a Lender

Job History

Most lenders need a contact who can verify your employment and a two-year history of work. Lenders may sometimes want to see your diploma or college transcript as proof that you attended classes when you claimed to be enrolled.

Income

Two recent paystubs are typically necessary, but some lenders may additionally ask for tax records, especially if you were a self-employed individual. Income discrepancies might raise further problems, particularly if your income has decreased for a particular reason like a decreased bonus or commission. You must provide proof that your income will continue if you receive child support, Social Security, or any other benefits except earnings.

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Assets

In order to make sure you are not borrowing money from someone for the down payment, lenders want to know where your assets have originated from. If you are receiving assistance for your home purchase, gift letters are necessary and must adhere to lender requirements.

Debts

Your debts will be shown on your credit report and included in the debt-to-income ratio calculation. Before submitting an application for a mortgage, it’s a good idea to evaluate your credit history since any disputed debts or debts that you think have already been settled may need to be verified and removed off your credit report in order for you to be approved for a loan.

Credit History

In addition to looking at your credit score, lenders will also review your record to search for credit inquiries and prior credit issues. Lenders could inquire about if you have recently applied for any further loans or credit cards if you have a high number of recent credit queries on your file.

Unexpected Lender Questions That Are Still Legal

Ethnicity

The Department of Housing and Urban Development (HUD) really mandates lenders to enquire about borrowers’ race in order to prevent discrimination based on ethnic origin. In order to ensure that lenders aren’t regularly rejecting or overcharging minorities, HUD may analyze lender data.

Lawsuits

Although it may appear as if a lawsuit, particularly if you are the plaintiff, should not have an influence on your ability to finance a house, lenders usually ask applicants whether they are participating in a lawsuit because of the possible expense and the chance that the borrower may be found liable.

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Divorce

Because a borrower could be held accountable for an ex-debt, spouse’s lenders are especially interested about the financial specifics of a divorce. In addition, a lender will need concrete evidence that the income will continue if you attempt to include child support or alimony as income on your loan application.

Questions You Can’t Be Asked

Despite the impression that a lender may inquire about any matter with a borrower, inquiries into family planning and health-related matters are off-limits to lenders. According to HSH.com, lenders are not permitted to inquire about your family plans under the Equal Credit Opportunity Act.

Due to the presumption among lenders that women would leave their jobs when they were pregnant, this question was historically used to discriminate against female borrowers. However, it is possible to ask questions about your marital status and the number of dependents you have in order to determine if you qualify as a first-time home buyer and for certain loan programs with income restrictions.

Lenders are not permitted to ask you any questions about your physical state since they are barred from discriminating against borrowers who are sick or handicapped under the Fair Housing Act and the Americans with Disabilities Act.

What Should You Not Do When Applying for a Mortgage?

Mortgage lenders want to be sure that you can regularly make your loan repayments. Therefore, it is not advisable to engage in any financial practices that can create the idea that you would have trouble repaying your loan. Avoid taking on any additional long-term debt, changing employment, become self-employed, purchasing a new automobile, opening new credit lines, or falling into any other types of debt.

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co-sign a loan for someone else, fall late on any payments, or otherwise falsify your financial standing.

Can a Lender Ask If You Are Having Medical Issues?

No, a lender is not permitted to inquire about your health. It’s one of the few subjects, along with whether you want to create a family, that you can’t bring up in conversation.

Why Do Mortgage Lenders Need Tax Returns?

To confirm that you have the income, assets, and other possessions that you claim to have, mortgage lenders often request two years’ worth of tax returns. Additionally, mortgage lenders may request documentation of your job history, income, and retirement assets.

The Bottom Line

Today, every borrower must be ready to respond to practically any question a mortgage lender may pose. However, if you believe your lender is asking you questions that are improper, you should ask them back and consider finding a different lender.

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