Are you thinking of buying a home or refinancing the one you currently own, but not sure what kind of questions you'll have to answer? Well, hopefully you're comfortable with giving a little more than your name and job title. Because lenders are allowed to ask a host of questions that might surprise you.
"Borrowers will have to fill out what we call the declaration page, or form 1003 of the Uniform Residential Loan Application, on a loan application," says Elizabeth Weintraub, who has 30 years of experience as a realtor and covers real estate for About.com. She says borrowers are often surprised at how in-depth the questions on this form can be.
For instance, in addition to asking about your job, your income, and the number of dependents you have, lenders ask about marital status, any borrowed money, and outstanding legal matters. But don't worry, parking tickets don't count.
To find out what does count towards your chances at qualifying for a mortgage - and what lenders will ask to find out that information - read on.
Surprising Question #1: Are You a Party to a Lawsuit?
Anyone who's watched 10 minutes of "Judge Judy" knows that lawsuits are a) no fun, and b) unpredictable. And if there's one thing mortgage lenders don't like, it's unpredictability.
That's why there is not just one, but two questions on the Uniform Residential Loan Application form that pertain to lawsuits. One asks, "Are you a party to a lawsuit?" And the other asks if there any outstanding judgments against you. An outstanding judgment, in this case, would be if you owe anyone money or property due to losing a court case, says Weintraub.
Why do lenders want to know this? "They want to know if there's any legal action that could have an adverse effect of getting the loan or paying back the mortgage. If the result was or could be a judgment being recorded against the borrower, then that would have an effect on their assets and their ability to repay the mortgage," says Weintraub.
So make sure you tidy up all legal matters before you try to buy a home or refinance, she says. Or it could get more annoying than a bad "Judge Judy" episode.
Surprising Question #2: Are You Married, Single, or Separated?
Just what does your private life have to do with getting a mortgage or qualifying for refinancing? A lot, actually. And while most Americans don't blink when it comes to financial entities asking if they are married or not, the term "separated" doesn't come up much.
Except on the Uniform Residential Loan Application form - and again, it's all about the Benjamins.
"The reason they ask about separation is because in certain states like California, which is a community property state, you can be held legally responsible for your soon-to-be-ex-spouse's debt," says Weintraub.
And if your soon-to-be-ex-spouse has a large amount of debt - it could affect your ability to qualify for a mortgage or a refinance, says Weintraub.
Regardless of the debt issue though, there is another reason for this personal question. If you're refinancing as a result of a separation to remove your spouse from the mortgage, Weintraub says that the spouse who will no longer be on the mortgage will have to sign an interspousal transfer deed. This transfers the title of the property over to the spouse who will hold the mortgage in the future.
Surprising Question #3: What is Your Ethnicity and Race?
You might ask, correctly, why a lender should be able to ask about your ethnicity or race. Shouldn't your ability to qualify for a mortgage or refinance be judged solely on your financial behaviors and ability to repay your loan?
In a word, yes. And rest assured, it does depend on those things, says Weintraub. In fact, on the Uniform Residential Loan Application form, you can check a box that says, "I do not wish to furnish this information." Of course, the form states, "If you do not furnish ethnicity, race, or sex, under Federal regulations, this lender is required to note the information on the basis of visual observation and surname if you have made this application in person."
But this portion of the form, says Weintraub, is actually designed to ensure discrimination does not happen. "There is a Home Mortgage Disclosure Act, called the HMDA. Under it, lenders have to report the breakdown of the race and ethnicity of their borrowers," she says. In this way, the HDMA protects against discrimination.
"So the question actually does the opposite of what some people fear it does. It protects minorities and them being discriminated against," she says.
Surprising Question #4: How Many Years Have You Been in Your Profession?
While it's obvious that lenders would want to know about your job and income, what might be a little surprising is their interest in how many years you've been working at your job. So, why do they need this detail? Because they want to know you've been in your current industry for at least a few years, says Justin Pritchard, a financial planner who writes About.com's banking and loans column.
He says that in these times of high unemployment and economic uncertainty, lenders are much more cautious about green-lighting mortgages and refinances than ever before. So the longer you've been in one industry or profession, the better.
The logic? "If you've stuck with something for a while, it suggests more stability and income, so the lender will feel more confident that you can make those mortgage payments," says Pritchard.
On the flip side, he says if you're new to an industry, the reverse could be true. "If you're a newbie and you don't make as much, your position isn't secure, so it's going to make getting a loan harder," says Pritchard.
An important note, he says, is this doesn't mean getting a promotion, or even changing employers is a bad thing. Lenders just want to know that you've been in the same industry for at least two years.