There’s a small, remote section of the Residential Mortgage Loan Application – Section VIII, Declarations – that asks a dozen important questions. Most mortgage applicants pay little attention to these questions since they’re primarily focused on providing more basic information, such as property, personal, employment, income and credit details.
Since your credit can impact your interest rate, you should know what kind of shape it’s in. If it’s not in great standing, you may want to take steps to improve it before you refinance.
But hidden discreetly on pages 3 and 4 of the loan application are the Declarations, and how you answer them can have a material effect on whether or not you get the loan, and even at what rate and terms you get it at.
Let’s look at all of the questions and explain exactly what they mean.
1. Are there any outstanding judgments against you?
This is information that typically shows up on a credit report, but it’s likely that lenders ask the question directly just in case there’s a judgment that hasn’t been reported to the credit bureaus. You should answer “yes” if you have a judgment in your past, and whether or not it’s been satisfied.
2. Have you been declared bankrupt within the past 7 years?
This is another question that’s revealed by your credit report, but it’s asked on the oft chance that it hasn’t been reported to the credit bureaus. You should answer “yes” if you have filed, even if the bankruptcy was paid or canceled.
3. Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?
Same situation here, the information will almost certainly show up on your credit report, since a foreclosure is a legal action recorded in the local courthouse. When answering the question, remember that it isn’t just about foreclosure. They’re also asking if you’ve “given title or deed in lieu thereof,” which means anytime you’ve surrendered a property to satisfy the mortgage.
4. Are you a party to a lawsuit?
Answer “yes” whether you are the plaintiff or the defendant in the lawsuit. Naturally, the lender will be most concerned if you are the defendant since it holds the potential for future liability, should the case go against you. You should also be prepared to provided documentation of the suit in as much detail as possible. Unfortunately, the information provided can work against your loan application if you are the defendant. The lender may need to assess the likelihood of the case going against you, as well as your ability to satisfy it while still paying your mortgage.
5. Have you directly or indirectly been obligated on any loan which resulted in foreclosure, transfer of title in lieu of foreclosure, or judgment?
This is a catch-all question involving default on various types of loans including:
“This would include such loans as home mortgage loans, SBA loans, home improvement loans, educational loans, manufactured (mobile) home loans, any mortgage, financial obligation, bond, or loan guarantee. If “Yes,” provide details, including date, name, and address of Lender, FHA or VA case number,
if any, and reasons for the action.”
Think long and hard before answering this question, as it also includes student loan debt and any loans that you may have cosigned for someone else.
6. Are you presently delinquent or in default on any Federal debt or any other loan, mortgage, financial obligation, bond, or loan guarantee?
A very similar question to Question 5 above, but specifically relating to Federal debts. Think government insured student loans, or government insured mortgages, like FHA and VA loans. But like other answers you give in this section, the information is likely to show up on your credit report, so be truthful by all means.
7. Are you obligated to pay alimony, child support, or separate maintenance?
Lenders are keenly aware that many people who have these obligations won’t necessarily volunteer the information. As well, it doesn’t usually appear on a credit report, though there are other ways that it shows up. The Assets and Liabilities section of the loan application has a line specifically for this obligation, but this question is something of a cross-examination question.
8. Is any part of the down payment borrowed?
Naturally, you should answer “yes” to this question if you are using a second mortgage or home equity line of credit as part of your down payment. But the lender is also looking to determine if any of your actual down payment is borrowed. This can include cash advances against credit lines or loans from family or friends. You’ll want to be honest here because the lender will look for documentation of any large deposits made into any of your asset accounts prior to closing. If one turns out to be a loan, your loan application could be halted.
9. Are you a co-maker or endorser on a note?
This usually turns up on a credit report, but there are rare occasions where it doesn’t. More common however is a loan that you co-signed that’s showing you as the primary borrower. You would do well to be completely honest here, since there are strategies to exclude the payments on cosigned loans, for mortgage qualification purposes.
10. Are you a U.S. citizen?
This is a basic question, and the lender will look for documentation to prove it. So be totally honest.
11. Are you a permanent resident alien?
If you aren’t a citizen, are you a permanent resident alien? If so, you will generally be entitled to borrow under the same programs as US citizens, but you will need to document your residency.
12. Do you intend to occupy the property as your primary residence?
You have to be completely honest here, as the type and amount of the loan that you will qualify for hangs in the balance. There are cases of people claiming primary residency, but where the property is ultimately rented out shortly after closing. Be careful, as lenders do perform occupancy inspections after closing.
There’s a Part B to this question; actually, it’s Question 13. The application reads If “Yes,” complete question 13 below.
It then goes on to ask the following question:
“13. Have you had an ownership interest in a property in the last three years?
- (1) What type of property did you own—principal residence (PR), second home (SH), or investment property (IP)?
- (2) How did you hold title to the home— by yourself (S), jointly with your spouse (SP), or jointly with another person (O)?”
This question is important if you are applying for a mortgage that is specifically designed for first-time homebuyers. You are generally considered to be a first-time homebuyer if you’ve never owned a home in the past, or if you haven’t owned one in the past three years. Again, be truthful as this information can usually be verified with third party sources.
So there you have it – 12 “minor” questions that could mean only everything depending on how you answer them. But answer them thoughtfully and truthfully, since most of the information is available anyway. And in most cases, the more your lender knows about your situation, the better they can help you get the mortgage that you want.