Andrew Dehan | (TNS) Bankrate

When you apply for a mortgage, the lender will assess its risk to decide whether to loan you money. Along with the mortgage questions they’ll ask you, you’ll also likely have questions to ask a lender, including inquiries about application requirements and what mortgage lenders look for.

Here, we’ll cover some questions to ask a mortgage loan officer — as well as questions the lender will ask you — when you apply for a home loan.

Mortgage questions to ask lenders

It’s smart to learn more about how to qualify and get approved for a mortgage, as well as what to prepare for. Here’s a rundown of some of the most common questions to ask a mortgage lender.

What type of mortgage do you recommend for me?

There are several types of mortgages, including conventional loans and FHA loans. Talk with your lender or loan officer about the type of mortgage they recommend based on your needs, credit and finances.

What is the minimum down payment requirement?

While you might believe that a 20 percent down payment is necessary, the reality is that many mortgages require significantly less. Inquire with your lender about the specific down payment requirements, and if you’re a first-time homebuyer, explore any available special programs.

Do I qualify for any down payment assistance programs?

Here’s some good news: You may qualify for a down payment assistance program that awards a loan or grant designed to provide you with a portion of the upfront funds necessary for the home purchase. Some programs extend their support to cover closing costs. Many down payment assistance programs exist nationwide, with some operating at the federal level and others offered by individual lenders. Ask the lender if you may be eligible for a program they offer or know about.

What is the annual percentage rate?

The annual percentage rate (APR) signifies the yearly cost of your loan, which is different from the interest rate. The APR includes the interest rate and all additional fees, such as origination fees and mortgage points. When comparing two or more mortgage offers, the APR provides a better understanding of the overall cost compared to solely considering the interest rate. Be sure to inquire about your APR as well as the interest rate charged.

What will my monthly payments be?

If you’re comparing rates but aren’t quite ready to submit a mortgage application, consider asking the lender to compute your monthly mortgage payment based on the provided quote. (Upon actual application, you will receive a loan estimate outlining these specifics.) This step can help you understand your homebuying budget.

Do you offer prequalification and preapproval?

Ideal for people preparing to purchase a home, the mortgage prequalification process gives you insights into what you might qualify for when you decide to apply. Many lenders offer prequalifications without running a credit check, but be sure to confirm this beforehand.

When you are ready to seriously start house-hunting, you’ll need to get preapproved so you can make good-faith offers on homes. While a preapproval isn’t a commitment to lend, it’s a good indication you’ll get the loan you need when the time comes. For a preapproval, you’ll need to hand over financial documentation and undergo a credit check.

Is mortgage insurance required?

For a conventional loan, you’re required to pay private mortgage insurance (PMI) if you put down less than 20 percent. This insurance is an added cost that usually gets added to your monthly payments.

With an FHA loan, you’ll pay mortgage insurance in the form of two mortgage insurance premiums (MIPs): upfront MIP and annual MIP. You’ll pay the upfront MIP (which is a flat fee) at closing. You’ll pay annual MIP monthly for either 11 years (if you put 10 percent or more down) or the life of the loan (if you put less than 10 percent down).

Note: Some lenders offer “no-PMI loans,” which eliminate these premiums in exchange for a higher interest rate. Depending on how long you plan to live in the home, it might or might not make sense to accept the higher rate.

How much are closing costs?

Closing costs include lender and third-party fees, such as for the appraisal and title services. Ask your lender for their origination fee, credit check fee and other costs. This will help you prepare financially and avoid surprises at closing.

Are there any penalties for prepaying the mortgage?

With many mortgage lenders, you can pay off your mortgage early without any penalty. However, some lenders charge a prepayment penalty to discourage you from making higher scheduled payments or fully paying off the loan ahead of the timeline stated in the loan agreement. That’s because mortgage lenders and banks stand to gain more revenue when borrowers adhere to a longer loan duration, such as with a 30-year mortgage. Remember to ask if the lender will impose a penalty if you pay off your loan early, and how much this penalty will cost you.

Mortgage questions lenders ask you

Expect mortgage lenders to ask about various details, from the specific loan you are seeking — whether it’s for a home purchase or refinance — to your desired closing timeline and whether you plan to have a co-borrower on the loan. Here’s a list of questions the mortgage lender might ask you.

What type of property is this for?

The lender needs to know the type of property you hope to finance and what you intend to use the home for. That’s because there are different rates and requirements for different properties. For example, you might need a bigger down payment to qualify for an investment property loan than you would for a primary residence. Note that, to answer this question, you’ll need to provide a home purchase agreement.

Documents to provide:

Home purchase agreement

What is your employment status and income?

If you’ve been steadily working with the same employer or in the same industry for two or more years, this can be an easy question to answer. However, if you are self-employed or work as a contract worker, you’ll need to provide more documentation, such as profit and loss statements from your business or 1099 forms if you operate on a contract basis.

Documents to provide:

Pay stubs from at least the past 30 days
Tax returns (including W-2s and/or 1099s) from the past two years
Employer contact information
Business records if self-employed
Other income sources such as bonuses, child and/or spousal support, disability or VA benefits, pension, Social Security or other sources

What recurring debts do you have?

Typically, lenders seek a debt-to-income (DTI) ratio that does not exceed 36 percent. That means that your regular monthly obligations — including car loans, credit cards, student loans and your mortgage (if you get it) — account for less than 36 percent of your pre-tax income. Keep in mind that the lender may also check your credit score during this process.

If you’re applying for a conventional loan and have 10 or fewer payments left on one of your debts, you might not need to provide documentation about it. Your loan officer can help clarify exactly what you need to supply in this case.

Documents to provide:

Credit card statements from the past 60 days
Student loan statements from the past 60 days
Auto loan statements from the past 60 days
Personal loan statements from the past 60 days

Do you have savings or other assets?

Savings (not including your down payment) or other assets can help strengthen your mortgage application. While you likely won’t be required to have a certain amount set aside, your lender still needs to know your complete financial picture.

Documents to provide:

Bank statements from the past 60 days, including for checking, savings and money market accounts (MMAs)
Retirement account and pension plan statements
Brokerage account statements
Documentation related to other properties you own, if applicable

How much are you putting down?

Typically, a higher down payment tends to result in a more favorable interest rate.

Keep in mind: If you plan to use a down payment gift from a family member or friend, your lender will likely require you to submit a gift letter explaining where the money came from.

Likewise, if you’re seeking down payment assistance, you’ll likely need to take a homebuyer class. Ask your lender if you’re eligible for down payment help and what the requirements are.

Documents to provide:

Bank and brokerage statements
Down payment gift letter, if applicable
Documentation related to down payment assistance or grants, if applicable

Do you have a co-borrower?

A co-borrower, also known as a co-applicant, is an extra person added to a mortgage. In this case, both applicants submit a loan application, and the mortgage lender evaluates the qualifications of the primary borrower and the co-borrower, considering factors such as income, assets and credit score. Typically, the lender determines the loan terms based on the credit profile of the borrower with a stronger credit standing. Note that both names will appear on the title, and both people will be jointly responsible for repaying the mortgage.

If you plan to have a co-borrower, check that this won’t be a problem with the lender and learn what’s involved.

Questions a mortgage lender should never ask

While the list above might make it seem like mortgage lenders can ask you anything they want, there are some legal limits, according to Darrin Q. English, senior community development loan officer for Quontic, an online bank. These mortgage questions, says English, are on his “do not ask” list (and that of any law-abiding lender):

Sexual orientation
Disabilities
Family expansion plans (a lender can ask how many children you currently have and their ages, but it can’t ask if you plan to have more or discriminate based on familial status)
Political or religious beliefs
Medical history

In addition, although a lender can gather factual information about some things (your gender and marital status), under the Fair Housing Act and the Equal Credit Opportunity Act, it can’t discriminate based on race, religion, color, age, marital status, sex or national origin. There may be other protected classes enforced by your state, as well.

What to expect after you apply for a mortgage

Following your mortgage application, expect a “hurry up and wait” situation. While preapproval often occurs quickly, final approval depends on securing an accepted home offer and navigating the appraisal and underwriting stages. Typically, closing on a mortgage loan takes about 30 to 45 days, barring any unforeseen challenges.

Once you’ve applied for the loan, avoid making big purchases or financing anything else until the closing. Major financial moves can affect your credit score, as well as increase your DTI ratio, making you a riskier prospect. This might require restarting the underwriting process, or it could mean your mortgage application gets denied altogether.

Key takeaways

When shopping for a mortgage, ask each lender to detail their requirements, annual percentage rate (APR) and fees.
Be prepared to answer questions regarding your income, debt, down payment amount and more. You’ll need to back up your answers with documentation.
Lenders aren’t allowed to ask questions regarding sexual orientation, medical history, disabilities, political or religious beliefs and plans for family expansion.

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