Questions to expect from mortgage lenders
Applying for a mortgage can be stressful – and lead many buyers to feel as if they’re being interrogated. The following are six questions you can expect to be asked by your lender during the loan application process.
- What is your credit score?
Checking your credit score is a fast and easy for lenders to assess your financial history and health. Credit checks are a standard part of being pre-approved for a loan, and your credit will most likely be checked again before closing. Making on-time payments, reducing debt, and carrying a variety of credit can all improve your credit score.
- Do you have proof of income?
The lender will want proof of at least one year’s worth of income; this ensures the lender that you earn enough to make your monthly mortgage payment. Pay stubs, copies of checks, and invoices can all be used to provide proof of income. Make sure to note any additional sources of income you may have, such as alimony or child support.
- What are your assets?
Lenders want to know about your assets, savings, and other cash reserves. Diversified assets show good investing strategy, as well as prove you have the resources to cover the mortgage.
- What are your debts?
Even more important than your assets are your outstanding debts. Having large amounts of debt, whether it is in the form of credit card debt, student loans, or car payments, can make it more difficult to get a mortgage or lead to higher interest rates. Lenders will evaluate your debt-to-income ratio; this measures how much of your gross income is used to pay for debt. The debt to income ratio limit for most traditional loans is 43%.
- How much do you have for a down payment?
The amount you put down on a house can affect your qualification for a mortgage as well as interest rates. If you are putting less than 20% down on a house, your lender may require you to take on PMI, or private mortgage insurance.
- How will you use this property?
Are you flipping the house, buying a vacation home, turning a property into a rental, or using it as your primary residence? How you plan on using a property can impact your ability to get a mortgage. Many lenders have special requirements for properties that are being flipped or will be used as second homes.