What lenders ask and
how underwriters will evaluate the answers
Your mortgage lender is going to ask
you a lot of questions. It may seem as if they need to
know your whole life story, or at least the chapters that start with
your first credit account. The lender and their underwriters must be
sure that you are creditworthy before they lend you money. You can
expect to answer a lot of questions.
The first questions may deal with
your employment and income. Where do you work? How much do you make?
How long have you been there? How long have you been in this
profession? Do you have a steady salary or work on commission? Are
you self- employed? If you are self-employed, do you have several
years of income information?
The lender will need to know about
your debts. What recurring debts do you have? How much do you pay
each month for all of your debts? Do you have credit cards?
You will need to disclose your assets
and cash reserves. How much money do you have in the bank? Do you
have a savings account? Do you have a retirement account? Do you
have stocks and bonds or other investments? How much do you have
saved for down payment and closing costs?
You will need to decide how much you
can put down on the mortgage. The lender will need to know where the
money came from: the sale of a previous home, a gift from a relative
or from a nonprofit agency grant.
If you are refinancing and taking
cash out at closing, the lender will want to know what you plan to
do with the money. Do you plan to pay off debts or make improvements
to the home? Is it for your child's college education or to purchase
a second home?
If you are buying a home, the lender
will want to know the purpose of the home. Will you be living there?
Do you plan to use the property as an investment or rental property?
Is it a single-family home or a condo? Do you plan on renting out
part of it in the future?
What you want to show is that you
have:
" Steady employment of at least two
years with the same employer.
" Low debt with no recent purchases and a
debt-to-income ratio of less than 36%.
" Plans to purchase a single-family home to use as
a primary residence.
" A down payment of at least 5%, from money you
have saved or received from the sale of a previous residence.
" At least two month's worth of mortgage payments
in the bank after closing.
Some answers will mean that you have
to provide extra documentation to get a favorable rate and terms.
You will need to answer more questions if you are:
" Self employed or work on a
contractual basis.
" Maxed out on your credit cards or have more than
36% of your income devoted to debt repayment.
" Buying a duplex, condominium or plan to use the
property as a vacation home or rental property.
" Left without any extra cash after the closing
costs and down payment.
Not able to put more than 3% down on the home or
have to borrow the down payment money.
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