What are Lenders Allowed to Ask You When Applying for a Mortgage?

When you are applying for a loan, a mortgage lender can ask you about almost anything related to your finances. But there are a few questions they may try to ask that you simply don't need to answer.

Due to the collapse of the housing industry in 2008, lenders have been more careful about who they loan money to for mortgages. As a result, that means more guidelines for underwriting and more information from borrowers on applications. But regardless of the more stringent guidelines, there are still some things that lenders are not allowed to ask you. Here are some of the questions that lenders are not allowed to ask you when applying for a mortgage.

Family Status

Asking about your marital status is a little tricky. A mortgage lender is allowed to ask about your marital status, but only in a certain way. For instance, they can ask if you are married, separated or unmarried. However, they are not allowed to ask if you are single, divorced or widowed.

Similarly, mortgage lenders are not allowed to ask you if you are currently pregnant or if you are planning a family. Of course, the answer to this question could work against you if the answer is “yes” because it could affect your financial future. Lenders can only ask about your current dependents and their ages because that is information that is already available on your tax returns.

Child Support and Alimony

While a mortgage lender can ask if you are paying child support or alimony, they cannot require you to report any income that you receive from an ex-spouse. However, it is often beneficial to you if you are receiving these payments because it will put you in a better position to qualify for the mortgage loan.

Disabilities

A potential mortgage lender is not allowed to ask if you have any illnesses or disabilities when you are applying for a mortgage. This information is protected under the Americans with Disabilities Act and the Fair Housing Act.

What To Do if Asked an Illegal Question

Even though potential lenders are not allowed to ask these questions, that does not mean they are not going to pop up during an interview or application process. If this happens to you, the first thing you should do is tell the lender that you are not required to provide an answer to that question. Next, you should take the issue to the company’s manager. If the manager does not want to do anything about your complaint, you may need to take your complaint to the state’s banking commission. You can do this by filing formal complaints with the Federal Trade Commission or the Consumer Federal Protection Bureau. You should also look for a different mortgage lender that you are more comfortable with. If the lender is breaking the law during the interview process, there is a chance that they will be less than ethical when handling your mortgage.

Despite these questions that mortgage lenders cannot ask you, there are many questions left that they are allowed to ask. For instance, anything related to your income, your assets and your job is fair game. They can also ask about your current debt and your available credit. Be prepared to answer those questions and bring along any documentation and bank statements that will prove you can repay the mortgage loan if you get approved.

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You May Get a Big Advantage by Getting a Mortgage From a Small Bank

Large, nationally known banks may first come to mind when you’re applying for a mortgage, but you should not over look the advantages that smaller, community, banks may offer you.

Community banks, which the FDIC defines as having under $1 billion in assets, generally focus on lending and collecting deposits. Most are either stand-alone corporations or are owned by a bank holding company, which is designed for the sole purpose of owning a bank. In contrast, most of the larger, more widely known banks are commercial banks that are owned by financial holding companies. They may have subsidiary companies engaged in different types of financial activities, including investment banking, insurance sales, credit cards and stock brokering.

Another important difference between community banks and large commercial banks is that community banks tend to concentrate their activities in small geographical regions, while large banks may conduct business nationally or even worldwide.

With their focus on a particular area, small banks may be more familiar with local conditions in the housing market than are the major commercial banks. As Richard Brown, Chief Economist of the FDIC said, "Community bankers tell us that they have local ownership, they make decisions locally and it's based on their knowledge of the local market area. They also tell us there is a different way of doing business at community institutions. Some researchers … have described" community banking as more "relationship lending instead of transactional lending."

Relationship lending can work in your favor when you’re applying for a mortgage. With their knowledge of the nuances of the local housing market, community banks may be more willing to lend you money than a commercial bank.  In particular, this may apply if you already have a checking or savings account, or have a car or business loan, with that bank. Even better, the loan officer may personally know you, and with your banking history readily available, it is more likely that you would get a loan that a large commercial bank may turn down.

You might also take into account the benefit to your own neighborhood by conducting business with a local, community bank. Small community banks mostly gather deposits from their region and then tend to lend to local homeowners and businesses. Large commercial banks can get their deposits from sources around the world and fund loans across the country, as well as buying foreign currencies or bonds, corporate stock or bonds and various other securities.

Then, remember that a community bank’s localized service lends itself well to negotiations. Smaller banks want your business, since mortgage lending is one of their prime business operations, compared to large banks, which may make investments in many other areas. And you are often talking to the person making the lending decision, which should increase your odds of getting a better deal. They may be more flexible compared to the layers of bureaucracy you may have to wade through when dealing with a large bank.

Also, keep in mind that customer service is an area where local banks excel.  If you need help, either while your mortgage is being processed or you have begun making payments, it is far easier to get an answer by stopping by your local community bank’s branch office and dealing face to face with your banker than it is to contact a loan officer from a large commercial, whom you have likely never met, by phone.

A good way to start the process of getting a mortgage is finding the most competitive mortgage rates in your area by checking BestCashCow.com. You can also use the sites’ mortgage calculator to see the monthly cost of a mortgage as well as to compare mortgages of different lengths.

Now you are ready to select a bank that will give you a mortgage with best possible interest rate.

Renting or Buying: New Information for the Debate

Do you actually benefit financially from renting or buying a home? A new study may shed some light on that topic.

There’s always a debate about which is better financially – renting a home or buying one. While there will always be differing opinions on the matter, there is some new information that may help answer the questions or at least help you make a decision about which one is best for your situation.

In a recent study by Zillow.com of more than 7,500 cities in the United States including 224 metropolitan areas, researchers were looking for a “breakeven point” at which the cost of buying a home is a better financial decision than the cost of renting a home or apartment. In more than 75 percent of the cities and metropolitan areas, that point of breaking even was right around three years.

Three years, however, is just an average figure. In 7 percent of the cities that were included in the study, it took five years or even longer to reach the point of being a financial benefit. Some of the more popular cities where it takes longer to break even are located in California, including Santa Cruz, San Jose, San Luis Obispo and other. Oak Harbor, Washington is also on the list of cities where it takes five years or more for it to be financially beneficial to purchase a home.

On the other hand, there are some cities on the low end of the spectrum. In a few cities, it only takes 1.6 years to reach the break even point. Some of those cities include Miami, Mobile, AL, Tampa and Memphis. Red Bluff, CA and Salisbury, MD are also included in that list.

According to some analysts, these numbers have not always been that way. With mortgage rates and home affordability at historic lows, it is becoming more beneficial to purchase a home these days. Also, combine that with the average 5 percent increase in rent across the country in the past year, renting has become less of a benefit than it has been in years past. The study is also the first of its kind which studies the numbers and tells people the actual amount of time that living in a home becomes beneficial over renting. It’s also different than previous studies which only included the price-to-rent ratio because the current study used the overall cost of home ownership.

According to an article this year in the New York Times, today’s average home price in many areas across the country have reached the same levels that they were at in 2004. The values of these homes are also expected to increase by about 1 percent between now and next year. If you can get financing and you are tired of renting, this may be the best time for you to try to purchase a home if you can get financing for it.

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