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

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.

See the best mortgage rates where you live.

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Steps to Take Before You Begin House Hunting

Steps to Take Before You Begin House Hunting

You have made the big decision - its time to buy! However, unless you’re going to be paying cash for that house, condo or co-op, you'll need to take out a mortgage to cover the difference between your down payment and the cost of the property. But before you go house hunting, you should take some steps that can help make the process, including obtaining a mortgage at the best possible interest rate, go as smoothly as possible.

Keep those monthly payments down

Getting the best interest rate on your mortgage is really important because even a small difference in your interest rate can make a big difference in your monthly payments, especially since you’re going to be making them for many years to come. 

Great credit can help you score a great mortgage rate

The more creditworthy you are, the greater the likelihood that you will be offered a mortgage with the lowest interest rate, especially compared to someone whose credit rating may indicate, for example, delinquencies paying bills.

Credit rating agencies

To judge your creditworthiness, financial institutions review your rating from the three major credit ratings agencies, Equifax, Experian, and TransUnion.

Your credit rating is expressed numerically. The higher the number the better your credit. Most lenders will red flag applicants with credit scores below 700, so it’s important to be above this number when you’re applying for a mortgage. Even with a score above that you might not get the best possible interest rate, which lenders give only to those whom they judge to be the most like to make payments on time each and every month, so anything you can do to raise it is helpful.

Start by requesting your credit report

First, make sure your credit rating is as accurate as possible by requesting a copy of your report from each credit rating agency. Federal law mandates your right to a free credit report annually from each credit reporting agency, so you might request it, even if you’re if not applying for a mortgage in the immediate future. Then review each of these reports and if, necessary, make any corrections.

Other credit raising steps

Applying for new credits cards or having multiple inquiries made about your credit may affect your report, so try to keep these to a minimum. 

Also, large open balances on any of your credit cards may cause a loan officer to question your application, so, if possible, payoff any open balances to show that you’re up to date on all your bills.

BestCashCow.com for the best mortgage rates

Once you know your credit is in order, the best way to compare mortgage rates is to check the offerings on BestCashCow.com. That way you can easly compare interest rates from a variety of lenders, in specific zip codes. Then you can instantly find your projected monthly payment, depending on the size of the mortgage loan you’re applying for and even see the difference in payments between, for example, 15 and 30 year mortgages and fixed and adjustable rate mortgages.

Prequalification makes house hunting easier

After you’ve identified a lender, the next step is to get preapproved for a mortgage. While each lender has their own rules, in general, once you’ve been preapproved for a mortgage, which requires you to present all your documentation to the loan officer, you can go house hunting, confident in knowing how much you can borrow and what your monthly payments will be.

However, make sure you’re preapproved, not prequalified for a mortgage, since preapproval does not always require you to submit financial documentation. It’s possible that even if you’re preapproved, once you submit all the paperwork necessary to get a mortgage, you might not get the mortgage you thought you were approved for.

The next step

Now, with your preapproval letter in hand, its time to take the next step – finding that house of your dreams and financing it with best possible mortgage rate.

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What is a Mortgage Rate Lock and How Does It  Work?

What is a Mortgage Rate Lock and How Does It Work?

You have probably heard the term "mortgage rate lock" or "lock in your rate" when you are searching for a home. But do you know what this term means and how it is beneficial to you?

Until the US entered a period of historically low mortgage rates, mortgage rate locks were very common for those seeking to close on a property purchase. Rate locks are basically a guarantee that you can get a certain mortgage interest rate on your loan, provided you close or complete the necessary paperwork within the agreed upon time period. For example, you may get a lender to agree to lock in a 3.5 percent interest rate for a 30 year fixed rate loan for 15 days. If you close or complete the necessary paperwork, the lender will release the funds for your loan within the 15 day lock period; if you do not, the rate lock agreement is forfeited.

Here are some other things you should know about rate locks to get a better understanding of how they work.

  • When you get a mortgage rate lock, the lender typically charges you points in exchange for locking in the rate. A 15-day rate lock generally costs 2 points and it can go up from there. For a 30-day rate lock, you may be charged 2.25 points and a 60-day rate lock may mean paying 2.5 points. Mortgage points are basically a form of interest that you pay upfront. Each point is equivalent to one percent of the amount of the loan and you can purchase points in order to reduce the interest rate on your loan which, in turn, reduces the monthly payment for your mortgage loan. You only have to pay for these mortgage points if you end up taking the mortgage so there really is no downside to getting a rate lock on your mortgage.
  • Lenders run the risk of losing money by offering a rate lock because mortgage rates can increase during the locked period. If you have a 4 percent rate locked in and  mortgage rates go up to 5 percent, they cannot charge you the extra percentage rate as long as you purchase the house during the locked period. 
  • While banks cannot charge you a higher mortgage rate during the locked period, some banks may offer what is known as a free float down. This means that if mortgage rates drop during the lock period, the bank will offer you the lower rate. However, many banks charge extra for this option.
  • Many times, a mortgage lender will only let you lock in an interest rate on a certain property that you are considering purchasing. There are times, however, where a lender will let you lock in a rate before you find a house that you want to purchase. This is often called a “lock and shop” program which is ideal if mortgage rates are steadily increasing.
  • If you are purchasing a home that is new construction, you may find lenders that offer long-term rate locks. These types of rate locks cost a little more in points and they may also require an upfront deposit in order to guarantee the mortgage rate. These long-term rate locks can be as long as 180 days because it can often take longer to close on a new construction home if it is still in the process of being built and you may have an opportunity to get a lower rate if the mortgage rates drop during that period of time.

If you have been wondering about rate locks, these are just a few of the things that may help you understand this concept better. Your mortgage lender can give you more information about how many points you will be expected to pay and their specific rate lock programs and details.

Compare the best mortgage rates here.

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