After the housing crisis and subsequent recession in 2008, mortgage lenders now want to know everything about a potential borrower before they even think of approving a home loan. Their goal is simple: to find out if you have the financial capacity to repay your mortgage.
Aside from requesting copies of your tax and financial documents, mortgage lenders will ask a variety of questions related to your income, financial history, debt, and credit among other things. Listed below are 3 different types of questions lenders tend to ask.
1. Previous and Current Debt
Questions regarding your lending history would go along the lines of “Do you have any recurring debts? What are they? How much do you have to pay every month?”
Lenders want to know how much debt you’ve handled in the past as well as what kind of debt you’re dealing with at present. This includes auto loans, credit cards, and personal loans among others. Furthermore, creditors prefer borrowers whose monthly debt payments do not exceed 36% of their gross income. So, if you’re constantly maxed out on your credit card, don’t expect to have an easy time wooing lenders.
2. Income
You can expect lenders to look into your employment status and income with questions like “How much do you make from your regular work? Do you have other sources of income? Do you have a steady salary or irregular income?”
You get brownie points if you can prove a history of steady employment of at least two years with the same employer, or between different employers but in the same line of work. If you are self-employed or work on a contractual basis, however, things can get complicated and you may be asked to present additional documents to prove income stability.
3. Down Payment
You’re likely going to be asked how much you intend to pay up front (i.e. the size of your down payment). Additionally, lenders are going to ask you questions like, “Where will you be getting your down payment money?”
Lenders are definitely going to prefer someone who plans to shell out a more sizable down payment. With that, promise a down payment of at least 20% to gain your lender’s confidence. requirements.
Telling a lender that you will be paying your down payment with money from another source like a gift from family or a cash grant isn’t a good idea. Instead, present documentation to prove that you can and will be paying the down payment using your own savings.
But remember, this all depends on the kind of loan you’re applying for. If it’s an FHA or a USDA housing loan, you can get zero down payment if you meet the mortgage program’s
Bottom line? Think like a lender. What are shining qualities in a borrower that would make you confident in their ability and intention to repay you on time and in full? If you would like to learn more about mortgage requirements, mortgage advisor Chris Lamm can you walk you through the entire home loan process. Get in touch today by calling our offices at 530-282-1166 to schedule a consultation.