Mortgage applicants expect to be asked to prove their income, verify their employment and provide permission for their tax returns to be reviewed, but these days, lenders frequently demand more and more answers to questions that may seem out-of-bounds to borrowers. Questions about exactly where every dollar comes from in your bank account may seem excessive, but lenders must document everything about an applicant's finances in order to prove to underwriters that the borrowers will repay the loan.

SEE: Homebuyers' Walkthrough: Obtaining A Mortgage

Questions You Should Expect from a Lender
Job History
Most lenders want to see a two-year history of employment and will need a contact where your job can be verified. In some cases, according to a recent article in MarketWatch, lenders can ask to see your diploma or college transcript in order to verify that you were in school when you said you were.


Income
Typically, two recent paystubs are required, but some lenders will also require tax returns, particularly if you were self-employed. Discrepancies in income can trigger extra questions, especially if your income has declined for some reason such as a reduced bonus or commission. If you receive child support, Social Security or some other payments other than wages, you'll need to provide documentation that the income will continue.


Assets
Lenders want to know where your assets have come from in order to ensure that you are not borrowing money from someone for the down payment. Gift letters are required and must meet lender restrictions if you are getting help for your home purchase.


Debts
Your debts will show up on your credit report and will be calculated as part of your debt-to-income ratio. It's a good idea to review your credit history before applying for a mortgage because any disputed debts or debts that you believe have already been repaid will require proof and may need to be erased from your credit report before you can qualify for a loan.


Credit History
Your credit score is an important part of your loan application, but lenders will also look at your report to check for credit inquiries and past credit problems. If you have a number of recent credit inquiries, lenders may ask if you have taken out other loans or new credit cards that have yet to show up on your report.

SEE: Check Your Credit Report

Unexpected Lender Questions That Are Still Legal
Ethnicity
In order to avoid discrimination based on someone's ethnic background, the Department of Housing and Urban Development (HUD) actually requires lenders to ask about borrowers' race. HUD can then review lender records to make sure they aren't routinely turning down minorities or charging them higher fees.


Lawsuits
While it may seem like a lawsuit, especially if you are the plaintiff, should not impact your home financing, lenders always require applicants to ask if they are involved in a lawsuit because of the potential cost and the possibility of a judgment that goes against the borrower.


Divorce
Lenders are particularly concerned about the financial details of a divorce because of the possibility that a borrower could be held responsible for an ex-spouse's debt. In addition, if you are trying to include child support or alimony as income on your loan application, a lender will need some hard proof that the income will continue.

Questions You Can't Be Asked
While it may seem that a lender can ask a borrower anything, there are two topics that are forbidden for lenders to investigate: family planning and health issues. According to HSH.com, under the Equal Credit Opportunity Act, lenders are not allowed to ask if you are planning a family. In the past, this question was used to discriminate against female borrowers because lenders assumed women would quit work when they became pregnant. You can, however, be asked about how many dependents you have and about your marital status, because that is information that can be used to qualify you as a first-time homebuyer and for special loan programs that have income limitations.

Under the Fair Housing Act and the Americans with Disabilities Act, lenders are prohibited from discriminating against borrowers who are ill or disabled, so they are not allowed to ask you any questions related to your physical condition.

The Bottom Line
Every borrower today needs to be prepared to answer almost anything a mortgage lender asks, but if you feel you are being asked inappropriate questions you should ask your lender some questions in return and perhaps find another lender.

Related Articles
  1. Home & Auto

    The Pros and Cons of Owner Financing

    Details on the upside and risks of this type of deal for both the owner and the buyer.
  2. Credit & Loans

    Can Corporate Credit Cards Affect Your Credit?

    Corporate cards have a hidden downside. If the company fails to pay its bills, you could be liable for the amount and end up with a damaged credit rating.
  3. Credit & Loans

    Millennials Guide: Picking the Best Rewards Cards

    There are perks a-plenty on offer, but you have to find the right plastic for your lifestyle.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares US Real Estate

    Learn about the iShares US Real Estate fund, which holds shares of equity and nonequity real estate investment trusts incorporated in the United States.
  5. Credit & Loans

    Your Credit Score: More Important Than You Know

    Credit scores affect key aspects of your personal and professional life. Knowing your score and managing your credit input can make a big difference.
  6. Credit & Loans

    Joint Credit Cards: The Pros and Cons

    A joint credit card may sound like an easy way to split the bills, but make sure you know what you’re getting into first.
  7. Credit & Loans

    Schedule Loan Repayments with Excel Formulas

    Calculate all the particulars of a loan using Excel, and set up a schedule of repayment for a mortgage or any other loan.
  8. Credit & Loans

    What Qualifies as a Nonperforming Asset?

    A nonperforming asset is a loan made by a financial institution to a borrower who has failed to make any scheduled payments for at least 90 days.
  9. Credit & Loans

    Fixing Your Credit Score: A Do It Yourself Guide

    Following these five steps can go a long way toward repairing a low score.
  10. Credit & Loans

    Co-signing a Loan? Make Sure You Know The Risks

    Contractually, co-signers are just as responsible for the loan as the person actually borrowing the money. Be careful not to put yourself at risk.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Credit Rating

    An assessment of the credit worthiness of a borrower in general ...
  3. Chattel Mortgage Non-Filing Insurance

    An insurance policy covering losses that result from a policyholder ...
  4. Fair Housing Act

    This law (Title VIII of the Civil Rights Act of 1968) forbids ...
  5. Jamming

    A scam perpetrated by bogus credit repair firms that involves ...
  6. Furnisher

    A company that provides information about a consumer, including ...
RELATED FAQS
  1. Why would someone change their Social Security number?

    In general, the Social Security Administration, or SSA, does not encourage citizens to change their Social Security numbers, ... Read Full Answer >>
  2. Can I take my 401(k) to buy a house?

    Once you reach 59.5, you can use the funds in your 401(k) retirement savings account to buy a house or any other expense ... Read Full Answer >>
  3. Can I take my 401(k) to buy a house for my children?

    Under the standard regulations for 401(k) retirement savings plans, you may elect to withdraw funds from your 401(k) for ... Read Full Answer >>
  4. How is market value determined in the real estate market?

    Anyone who has ever tried to purchase or sell a home has probably heard a lot about the property's fair market value, or ... Read Full Answer >>
  5. What is the difference between "closed end credit" and a "line of credit?"

    Depending on the need, an individual or business may take out a form of credit that is either open- or closed-ended. While ... Read Full Answer >>
  6. In what instances does a business use closed end credit?

    The most common types of closed-end credit used by both businesses and individuals are mortgages and auto loans. Businesses ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!