To be a responsible borrower, you need to be ready to meet your commitments even before you apply for a loan, and you need to have a definite plan from the start!
Two things you should do before you get started include:
- You should pick a mortgage lender.
- You should actually have enough money to pay the principal and interest on the borrowed money. In other words, you need to have enough money to pay your mortgage payment each month.
Some of you may everything planned out, but many of you still aren’t ready to answer the questions that lenders will ask you. Knowing what to expect and what questions are going to be asked, can be a great help when it comes to securing the loan, and you may be surprised at how detailed the questions can get.
Also, there are some questions that you are allowed to skip, and these questions may affect the chances of your loan approval. You definitely want to avoid answering questions that are inappropriate or illegal, and you want to be ready to answer the questions that are legitimate and important.
Your Job or Primary Source of Income
You must have a reliable income! Point, blank period. This is one of the first things that the lender will ask, and it is important that you have a reliable source of income to pay off the debt. You need to be able to prove that you have a source of reliable income. Some lenders (and some government lending programs such as Rural Development loans, FHA loans, etc.) will require that you have been employed for a certain amount of time, and you will need to be able to prove that to your lender through documentation.
Other Sources of Income
Aside from asking about your employment status, lenders will definitely ask about your salary and income. It may seem a private matter to discuss to a complete stranger, but you should keep in mind that you are getting financial assistance from this stranger. Lenders need to know exactly how much you make so they can judge whether you can meet your financial obligations to them.
You should know that lenders will inquire about other sources of income as well. For example, if you receive money from an investment account, they will want to know.
Your Assets and Liabilities
Another way for lenders to gauge your ability to pay your debt is by asking about your assets. They will also ask about any liabilities or debts that you have, and this information will be used to compute your debt-to-income ratio.
Your debt-to-income ratio is important to lenders because it allows them to see if you will be able to handle more debts. The higher this ratio is, the less able you are to pay off additional financial obligations.
Your Credit Score
Lenders use your credit history to see how you have handled your debts in the past. They are likely to ask questions about your credit score, especially if your credit history shows that you have recent loan inquiries. They use your credit score to determine your reliability when it comes to paying off your debts.
- Your Race
You may be asked questions about your ethnicity. This is not to discriminate against you or your race, but rather this is a way for the Department of Housing and Development to make sure that lenders are not showing bias to any ethnicity in the course of their work.
- Your Marital Status
Lenders use your marital status whether you are single, married, or divorced to see if you are liable for the debts of another individual.
What They Cannot Ask
- Lenders cannot ask you about your plans to get married. This is especially applicable to women. In the past, lenders discriminated against women who had plans of starting a family soon. This was based on the unfair assumption that the she would quit her job, impeding her ability to repay the loan when she got pregnant.
- Lenders are not allowed to ask you about your health or your medical conditions. The law prohibits discrimination against sick or disabled borrowers.
If you are planning to apply for a loan, you should remember that you have rights. You do not have to answer if the questions are inappropriate or illegal, but you are required to reply to legitimate questions since they will affect your chances of getting your loan approved.
Are planning to apply for a loan? Are you ready for the questions the lender may ask you? If you have applied for a loan in the past, what were some of the questions that you were asked?