Look at a paper loan application you’re instantly overwhelmed by all the questions and confusing terms.
But, fortunately, today most of your loan application is done online or digitally, with simpler questions, and completed with a brief discussion with a licensed mortgage loan officer.
All of these questions are very important and their answers can impact what you qualify for, as well as the rate you get. These questions can be found in the small Residential Mortgage Loan Application Section VIII — Declarations — and you need to be completely honest with your answers.
So, make sure that you ask questions for clarification and consult your loan officer early in your home buying or refinancing process.
Let’s look at 20 mortgage application 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 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:
“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.
13. What is your employment status?
A lender will want to see that you have an established and stable flow of income. Lenders will have different requirements for how many years at the same employer you will have to show, but generally working at the same employer for two years or more will be ideal.
Be prepared to show verification of your income by sharing pay stubs, tax statements, and W-2’s.
It’s also the best option to stay at this job that you applied for the loan with throughout the process and do not change employment before you close on the loan. It can actually affect your mortgage approval if your employer or income changes before you close.
Even retiring during your loan process may delay closing, even if you have enough income from Social Security and your pension to cover the bills.
14. What kind of savings and assets do you have?
Your lender will underwrite a loan based on criteria that include your savings and assets.
You might be asked for proof of deposit, which helps the lender verify any bank statements that you have submitted. Lenders may also use this to verify that you can pay the required down payment.
Additionally, not disclosing all of your assets will certainly affect your approval if the lender finds out that there was information withheld, whether accidentally or intentionally.
15. What is your marital status?
The lender isn’t asking this to be nosy. A major life change such as getting married or going through a divorce could have financial effects on your life.
Even if they don’t ask you, make sure to let them know if you’re going through a divorce, even if it’s amicable. Things like alimony and child support, whether being paid or received will affect the underwriting of your loan.
The lender may ask for a copy of your divorce decree if you will be receiving alimony or child support.
If the lender finds out about a divorce in the middle of the loan process, this could negatively affect your loan approval.
16. What will your Debt-to-Income Ratio be after you close on the mortgage loan?
Lenders will likely figure this out for you, based on the information that you provided. This is why it’s important to report all debts, especially those that may not be on a credit report.
Do you have recurring debt such as student loans or personal loans? What is the outstanding balance on your credit card? It’s better to be transparent than hold back potentially important information if you’re not sure that you should tell your lender.
It isn’t beneficial for either party if you’re approved for a mortgage loan that you won’t be able to afford. That’s why they need to know how much of your income will be going toward debt each month and if you have enough to afford your monthly payment.
17. How much of your income is “countable?”
Unfortunately, that side money that you make from dog-sitting is not countable toward your monthly income, even if it’s a frequent occurrence.
A lender would likely consider any money made from side gigs as sporadic, too new, or too inconsistent.
If you are considering picking up some “under-the-table” jobs to make extra cash for your mortgage, you might want to rethink that strategy. Again, talking to your lender about what they would, and wouldn’t, count as your consistent income is the best option.
18. Are you a U.S. veteran?
If you served in any branch of the U.S. military, you may be eligible for a VA Home Loan and a lender will want to make sure to present all loan options to you.
VA Home Loans can be used to purchase or refinance a home, or even reduce your current interest rate. You could also qualify for grants or credits, especially if you have a disability-related to your time in the service.
It is still legal for your lender to ask you what your ethnicity is but it’s also okay for you to leave the question blank without repercussions. This question is asked to help the government track discrimination and determine any patterns of specific races being denied loans at an above-average rate.
Similar to your veteran status, a lender may also ask your ethnicity to find out if you qualify for special loans or grants, such as the Native American Direct Loan.
20. How many children do you have and what are their ages?
Believe it or not, the number of kids you have may affect your loan approval.
An underwriter will need to know your residual income, which is the income you have leftover after all of your bills are paid. Families of different sizes will obviously have different amounts of residual income and therefore, will have different residual income requirements from the lender.
Specific loan products, such as USDA Home Loan, may also use your household size to determine your eligibility.
These 20 mortgage application questions and answers may seem like a lot of information but hopefully you’ve gained a better understanding about what and why lenders are asking you.
Your answers will directly affect whether you’re approved for the loan or not, so it’s important to ask for clarification on anything you’re confused about. The more your lender knows about your situation, the more they will be able to help you.
Now that you’re empowered with the knowledge you need to complete a mortgage application, let My Perfect Mortgage find the right lender for you.