What Questions Can You Expect From Loan Officers?
Are you interested in knowing what questions a mortgage lender will ask you when getting a loan to buy a house?
The questions mortgage lenders will ask potential borrowers are pretty straightforward.
Applying for a mortgage can be intimidating—you know they will ask you many questions and request numerous documents, and it’s probably going to feel like you must jump through many hoops to get a loan.
Of course, if you are like many homebuyers, you need a loan to purchase. That means going through the lending question-and-answer process is inevitable.
Fortunately, applying for a home loan is not as bad as it might first appear. Sure, it can be stressful—answering questions about your finances usually is, especially when relative strangers are doing the asking.
But with some research, you can know what questions to expect and what kind of answers they will seek.
On the other hand, asking questions is a two-way street. It would be best if you were thoroughly vetting any mortgage broker or lender that will work on procuring your financing.
Use these questions to ask a lender to ensure you are up to speed on your financing and get the best deal possible.
While you can expect a lender to ask many questions when providing a mortgage, you would be prudent to do the same.
Picking a lender is a significant financial decision that will impact your finances for years.
Lenders will throw around a lot of mortgage terminology you should be familiar with. These terms will become part of their everyday language when discussing your loan.
Questions Mortgage Lenders Will Ask When Providing Financing
Below are the most common questions a lender or loan officer will ask a borrower purchasing a house. Lenders will require this information when you have a mortgage consultation or are applying for a mortgage.
You can expect these home loan application questions to be a routine part of the mortgage process.
What is Your Employment Status?
The lender is going to be very interested in your job situation. They want to know that you are employed and will prefer if you have worked at the same job for a significant period—ideally, two years or more. Since lenders prefer stability, the longer you have been at your job, the better.
When you plan on buying a home, it makes sense not to complicate the process by switching jobs — not staying in your current position until your closing is one of the mortgage mistakes many lenders and real estate agents will mention.
Changing jobs in the middle of a real estate transaction can quickly get your mortgage approval terminated—something you will want to avoid if at all possible.
How Much Income Do You Make?
The amount of income you bring in each month is a significant concern for lenders. They need to be sure that you can pay the mortgage each month.
You will have to verify your income using mortgage documentation, such as pay stubs, tax statements, and W-2s. It will be easier if you have a steady income as far as the application process goes—because they can easily see that you bring in a certain amount of money each month, enough to pay the mortgage.
These items are all part of the mortgage documentation process to grant a loan. Use this resource for all the details to provide a lender to issue loan approval.
You must provide more details about your irregular income if you do not bring in a steady income, like a salary or consistent hourly.
The income question can be particularly in-depth when you are self-employed. As a self-employed mortgage applicant, you will need to provide additional documentation to verify your income over time — plan on being questioned thoroughly as a self-employed borrower purchasing a home.
How Much Debt Do You Have?
Debt is a significant consideration for lenders because it affects your financial stability. The more obligations you have, the harder it will likely be to keep up with that debt and pay your mortgage on time.
Debt is not necessarily bad when you are applying for a mortgage—most applicants have some obligation—but the type of debt you have and how much debt you have are significant factors.
The lender will examine all your debt, including other mortgages, car loans, student loans, alimony, and credit cards.
You want to be in a situation where your monthly debt payments are a reasonable amount of your pre-tax income, preferably 36 percent or less. Nerd Wallet has an excellent resource for calculating your income and debt ratios.
It is also essential to avoid making big purchases requiring additional outlays, such as buying a car, when trying to get a mortgage.
A car purchase can throw off your credit situation because it is a sizeable purchase and probably means taking on a lot of additional debt.
Buying a car during the loan process is one of the major mortgage mistakes to avoid discussed above.
What Kind of Savings and Assets Do You Have?
The lender will want to verify how much money you currently have in your bank accounts and any investments you happen to have.
If possible, you will want to have at least two mortgage payments in your savings, so the lender knows that you can pay your mortgage twice without earning more income.
Lenders know that things happen when you buy a home—something can break and require fixing, which can wipe out your bank account if you have very little money.
Lenders want to see that you have enough savings to survive the first period of homeownership and still make your mortgage payments.
What Down Payment Are You Planning on Making?
In a perfect world, every borrower would have 20 percent to put down on a home. But the world is far from perfect, which means many borrowers cannot put 20 percent down.
So, if you are worried about having a 20 percent down payment, do not stress too much. One of the many mortgage myths is you need a twenty percent down payment to purchase a house. WRONG!
You can still get into a home if you have a smaller down payment. However, whatever your down payment plans, you should be prepared to talk about them with your lender. The average down payment for a first-time buyer is around 6 percent.
One of the best first-time buyer tips is to research the many mortgage programs available to first-time homebuyers before looking at homes. Many of the financing options include down payments as low as three percent.
In a lender’s eyes, the best kind of down payment comes from a savings account you have built up for a while. You could also have money from a home you sold or are selling, which would make lenders happy.
They are looking to see if you have down payment money that is easy to track and verify where it came from. If your down payment comes from somewhere challenging to follow, it complicates the lending process.
Keep Track of Your Equity When Putting Less Than 20 Percent Down
Bonus tip – if you end up purchasing a home with less than twenty percent down, ensure you track your equity. When buying with less than twenty percent, you’ll more than likely end up paying what’s called private mortgage insurance.
Private mortgage insurance, or PMI, protects the lender in the event of mortgage default. While it will help you procure the loan, it is a useless fee that you’ll stop paying as soon as possible. Here is how you’ll end your private mortgage insurance payments.
Some borrowers will choose to avoid PMI from the start.
Where Does Your Down Payment Come From?
Whatever the size of your down payment, the lender will want to know where the money came from. For example, many buyers get help with down payments from their families.
You can still get a mortgage if you get a down payment gift from your family, but you will need to be able to show what happened, including where the money came from.
The lender will likely ask for documentation, such as bank statements for several months before applying and letters from anyone who gave you gifts for your down payment.
Do You Know Your Credit Score?
Whether or not you know your exact credit score will be of little importance because any lender is guaranteed to check it. Your credit score will determine whether they give you favorable loan terms. To get the best mortgage rate, you must have excellent credit scores.
For any first-time homebuyer, it makes sense to work on improving your score before making a home purchase. A good credit score to buy a house will be much different than what’s needed.
The credit score needed to buy a house will be much lower. However, you will not get anywhere near the same terms. In the long run, what you pay for the home via mortgage payments with interest tacked on can be substantial.
Potential home buyers will be rewarded when their financial standing is exceptional. If you are considering buying in the future, keep this in mind.
What Kind of Property Are You buying, and How Will it be Used?
Some people buy homes to live in; others buy homes to invest in. Your reason for purchasing the house will matter to the lender because it can change the terms of your loan and the types of loans you are eligible for.
It would be best to clarify whether you plan to live in the house most of the time, use it as a vacation home, or as a rental and investment.
The lender will also want to know what type of property you plan on buying, such as a single-family home, a condo, a duplex, or a townhouse.
The best situation—the one where it is easiest to get a loan—is one where you are buying a detached single-family home that you plan on using as your primary residence.
Of course, not everyone can purchase such a home, and some don’t want to for other reasons. Plenty of borrowers get mortgages for situations other than the ideal.
What is The Length of The Mortgage You Want?
One of the things buyers will need to consider when getting a home loan is how long they want the mortgage to last. The time you have a loan is knowns as the term of a mortgage.
Most mortgages are written for fifteen or thirty years, with thirty being the most common.
Over the last decade, however, more unique mortgage lengths have become more common. Some folks like to time the duration of their mortgage around significant life events such as a child’s graduation or retirement.
How long you want your mortgage to last is something you should give serious consideration to if you have the option. Some borrowers have no choice but to go with a thirty-year mortgage based on their ability to qualify.
Do You Want a Fixed or Adjustable Rate Mortgage?
Another common lending question is what type of mortgage you would like. Fixed-rate mortgages are the most popular because of their stability. You don’t need to worry about the rate or monthly mortgage payment changing.
On the other hand, an adjustable-rate mortgage usually comes with an initial lower rate. It can be a good choice when you’re sure you’ll be moving quickly and aren’t concerned about the interest rate increases.
What is The Purpose of The Loan?
While many borrowers are trying to get a loan to purchase a home they want to live in permanently, others are trying to get a loan by refinancing their current mortgage. They may want to take out cash when they close or have some other arrangement in mind. The details matter to the lender because it changes how the loan is structured.
Cash-out refinancing is more complicated than a traditional mortgage, but it is not unusual. The crucial part is to let the lender know what you aim for from the beginning.
Final Thoughts on Questions Mortgage Lenders Ask Borrowers
The questions a lender will ask when getting a mortgage are all part of lending institutions’ standard procedures. You must be truthful with the lender. Not being up-front could put you in a position where you don’t get the loan and lose out on your dream home.
Nobody wants that, so do your best, and the mortgage process should go smoothly.
Hopefully, these mortgage tips have been a great help!
Additional Worthwhile Real Estate Resources
- Other frequently asked mortgage questions – see more things home buyers should know when getting a loan to purchase a house. Having a solid understanding of your finances is essential.
- Real Estate appraiser considerations – learn what is important to an appraiser when going through a home and doing the appraisal work.
- Helpful advice to get your home sold – see what it takes to get your house sold quickly and for the most money in this informative article.
Use these excellent resources to make significant business decisions when buying or selling a home.
About the author: Bill Gassett, a nationally recognized leader in his field, provided the above Real Estate information on questions mortgage lenders will ask borrowers. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of Metrowest towns for 37+ years.
Are you thinking of selling your home? I am passionate about Real Estate and love sharing my marketing expertise!
I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.
