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14 min. read
07/15/2022

25 Important Mortgage Application Questions

25 Important Mortgage Application Questions
Julia Wells Photo
14 min. read · 07/15/2022

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 25 mortgage application questions and explain exactly what they mean.

What’s in this article?

Mortgage declaration questions
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Questions about your finances
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Next steps
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Mortgage declaration questions

Mortgage declaration questions come in two sections.

  • 5a: About this property and your money for this loan
  • 5b: About your finances

Section 5a includes the questions below.

1. Will you 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.

Next, it asks “If YES, have you had an ownership interest in another property in the last three years?”

Another way to read this question is “Have you owned a home in the last 3 years?” But it also covers cases in which you had partial ownership in a residence, perhaps an investment property or vacation home that you bought with someone else.

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.

If the answer is “Yes,” the application asks you to complete (1) and (2) below:

“Have you had an ownership interest in a property in the last three years?

  • (1) What type of property did you own: primary residence (PR), FHA secondary residence (SR), second home (SH), or investment property (IP)?
  • (2) How did you hold title to the property: by yourself (S), jointly with yourspouse (SP), or jointly with another person (O)?

For question 1, answer whether you’ve owned a primary residence, a secondary residence with an FHA loan on it, a second (vacation) home, or an investment (rental) property.

For question 2, “How did you hold title,” try to remember if you owned with anyone else. Don’t worry, no one will come after you if you answer incorrectly. Just do your best.

2. If this is a purchase transaction: Do you have a family relationship or business affiliation with the seller of the property?

Lenders need to know if this is an “arm’s length” transaction, meaning, you don’t know the seller. In a non-arm’s length transaction in which buyer and seller know each other, the seller might give you perks that they wouldn’t give someone else: a lower purchase price or a seller closing cost credit. The lender also wants to make sure there’s no business affiliation, such as a real estate agent selling a home to a loan officer they’ve worked with in the past. Both family and business relationships can manipulate the home value or other transaction details which can make it a riskier loan for the lender.

3. Are you borrowing any money for this real estate transaction?

The question goes on to give examples: “(e.g., money for your closing costs or down payment) or obtaining any money from another party, such as the seller or realtor, that you have not disclosed on this loan application? If YES, what is the amount of this money?”

This question covers two potential issues. First, if you borrowed money for the down payment or closing costs, you may not meet minimum contribution rule. For some programs, you must supply 3% of the purchase price from your own funds. For others, it’s 0%. But any borrowed money must be accounted for, since it could come with a payment. This question does not refer to the primary mortgage for which you’re applying.

Second, the lender needs to know the full amount of “interested party contributions.” Loan programs have limits, so you can only receive so much money from any party with an interest in selling the home — the realtor, loan officer, seller, builder, and others.

4. Have you or will you be applying for a mortgage loan on another property (not the property securing this loan) on or before closing this transaction that is not disclosed on this loan application?

If you are applying for a loan on another property, it might not show up on your credit report for this loan, and the lender needs to know the correct payments and balances for all loans.

5. Have you or will you be applying for any new credit (e.g., installment loan, credit card, etc.) on or before closing this loan that is not disclosed on this application?

Again, any new loans that the lender is not aware of need to be disclosed.

6. Will this property be subject to a lien that could take priority over the first mortgage lien?

The question gives examples, such as “a clean energy lien paid through your property taxes (e.g., the Property Assessed Clean Energy Program)?” Sometimes, local government loans can be prioritized on title ahead of the mortgage loan. Lenders require the mortgage loan to be the top priority on title, since the first lien is the one that gets paid off in the even of a foreclosure.

“About your finances” questions

Item 5b questions are as follows.

7. Are you a co-signer or guarantor on any debt or loan that is not disclosed on this application?

Most debts show up on a credit report, but there are rare occasions when they don’t. For instance, if you took a private loan from a family member, it is not reported to credit bureaus and therefore does not show up on your credit report.

More common, however, is a co-signed loan that’s showing you as the primary borrower. Be completely honest here, since there are strategies to exclude the payments on co-signed loans, for mortgage qualification purposes. For instance, you can show that another individual has been making the payment fo the previous 12 months. Ask your lender how to avoid being “hit” with the payment on your loan app.

8. 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. † †

9. Are you currently delinquent or in default on a Federal debt?

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.

10. Are you a party to a lawsuit in which you potentially have any personal financial liability?

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 provide 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.†

>> MORE: Compare Loan Options and Mortgage Rates

11. Have you conveyed title to any property in lieu of foreclosure in the past 7 years?

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.

12. Within the past 7 years, have you completed a pre-foreclosure sale or short sale, whereby the property was sold to a third party and the Lender agreed to accept less than the outstanding mortgage balance due?

This is another question regarding other ways in which a property may have been transferred due to non-payment of the mortgage.

13. Have you had property foreclosed upon in the last 7 years?

This question asks if the full foreclosure proceedings went through, instead of an alternative solution or just the beginning of the foreclosure process.

14. Have you declared bankruptcy within the past 7 years?

This is another question that’s revealed by your credit report, but it’s asked on the off 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. Include what type of bankruptcy it was, because some types of bankruptcies require shorter waiting periods before you can get a mortgage.

15. 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.

16. 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.

17. 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.

>> MORE: Check My Credit Score and Report (Free)

18. 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. 

19. 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. 

20. 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. 

21. 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.

22. 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. 

23. 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. 

24. Ethnicity? 

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.  

25. 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. 

Next Steps

These 25 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. 

Already applied for a mortgage? Make sure you’re getting the best deal. Apply with another lender here.

Photo by Cytonn Photography from Pexels

 
 
 
 

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