by Maurie Backman | Oct. 2, 2020
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Planning to get a home loan? Prepare to address these inquiries.
The process of applying for a mortgage can be daunting if you don't know what to expect. But the more prepared you are, the less stressful you'll find it. With that in mind, here are some key questions mortgage lenders often ask home loan applicants.
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Mortgage lenders don't just ask about income to be nosy; they need to make sure you earn enough money to cover your monthly loan payments. Be ready to present a couple of months' worth of pay stubs that show what your earnings look like.
There's a difference between a $90,000 annual salary, and a $90,000 annual income that's split between salary, bonuses, and commissions. Don't be surprised if your lender asks you to explain how your earnings break down. And as you might guess, the more of your earnings that come in salary form, the more confident your lender will be. After all, a salary is guaranteed, whereas bonuses and commissions are not.
In addition to checking you earn enough to cover your mortgage, your lender is also likely to want to know how long you've been with your employer. A longer, steady employment history will make you a more desirable candidate for a home loan. A choppy history that shows you tend to bounce from employer to employer could be a cause for concern.
In fact, don't be surprised if your lender calls your employer to verify that you're an employee in good standing. That said, don't worry if you've recently started a new job -- it won't necessarily hurt your chances of getting approved. What may happen, however, is that your lender will want your employer to verify that it intends to keep you on board for the long haul.
Your debt-to-income ratio is an important measure of how much you can afford to spend on a mortgage. It calculates your financial obligations relative to your income. The lower that ratio, the more attractive a home loan candidate you'll be. As such, be prepared to talk about the different debts you have. You'll need to include any debts you make monthly payments on, whether it's a car loan, a personal loan, or a credit card.
The higher your down payment on a home, the more comfortable your lender will be. Some lenders may have their own down payment requirements, so be prepared to talk about how much money you plan to put down at closing. Keep in mind that if you don't make at least a 20% down payment, you'll face private mortgage insurance, which is an added expense that gets tacked onto your monthly loan costs.
The sum you borrow in mortgage form probably won't be a small amount, so expect your lender to have a lot of questions about your financial situation. And remember, if a lender spots a red flag, don't just get upset about it. Rather, ask questions to understand why you're not an optimal loan candidate. Figure out what aspect of your financial picture needs to be improved. That way, you can make yourself a more viable candidate in the near future.
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