Questions To Expect To Be Asked By A Lender When Buying A Home
One of the most important pieces to the home buying puzzle relates to the financing. It’s important when buying a home that you are aware what questions to expect to be asked by a lender. Below are some of the most common questions to expect to be asked by a lender when buying a home.
One of the first questions to expect to be asked by a mortgage consultant relates to where you work and for how long you’ve worked at your current employer. One of the primary reasons this question is asked is to help the mortgage consultant understand your employment history.
Depending on the type of financing a buyer is attempting to obtain, the length and type of employment factors into whether a buyer will be accepted for the mortgage or not. One of the most common reasons a mortgage is denied after approval is due to changes in employment.
If a buyer has frequent job changes over the past couple years, it will be more challenging to obtain financing for a home purchase. It can also be challenging if a buyer changes their field of work.
For example, recently while attempting to help a buyer purchase a home, the buyer changed their career field from a salaried employee for a company to self-employed in the past year. This ultimately led to them not being able to purchase a home at the current moment due to their short work history in their new field of work.
How Much Money Do You Make?
Another question to expect to be asked when buying a home will relate to your income. A mortgage consultant does not ask how much money you make because they are curious. Knowing how much a buyer makes is critical in order to successfully get them approved for a mortgage.
The amount of money a buyer makes plays a huge role in how much of a home a buyer can purchase. The more money a buyer makes generally means the more expensive of a home they can purchase.
How Is Your Income Paid (Hourly, Salary, Commission)?
Not only is the amount of money a buyer makes important when buying a home but how the income is paid is very important as well. A question to expect to be asked when buying a home is how your income is paid. Are you an hourly employee? Do you have a yearly salary? Are you straight commission?
Lots of buyers don’t understand why they are asked how their income is paid. The primary reason it’s important for the lender to understand how income is paid is so they know whether their income will be a stable and guaranteed amount after the loan is funded.
If a buyer is self-employed the lender is going to require more documentation, primarily their tax returns for the previous 2-3 years, prior to issuing a pre-approval. The reason a lender will ask for additional documentation from a self-employed applicant is to ensure they’ve earned a stable income over the past several years. Generally a lender will average the past 2 years of net income, which is their income after any deductions, from a buyers tax returns to use for qualifying purposes.
Lenders will request similar documentation from buyers who have commission based incomes.
What Debts Do You Have?
The debt that a buyer has can sometimes make or break whether they can get approved for a mortgage or not. Another question to expect to be asked by a mortgage consultant when buying a home is about your current debts.
A buyer who has a solid employment history and good income but has lots of debts can have trouble obtaining a mortgage. A term that you will hear being used in the mortgage industry is debt to income ratio. Depending on the type of financing a buyer is obtaining, there are different maximum ratio levels.
Debt to income ratios play a big part in whether a buyer can get a mortgage or not. Debt to income ratios have become a common reason why millennial buyers are not able to get a mortgage due to their student loan debts.
Again, don’t be offended when a mortgage consultant asks you about the debts that you have, they are just doing their job and making sure your home buying experience is successful.
How Much Money Do You Have Saved In The Bank?
Some buyers are uncomfortable talking about the money they have saved in their bank accounts. It’s important to realize that the amount of money you have saved is a question to expect to be asked.
While there are ways to buy a home with very little money, it is still important for a mortgage consultant to know exactly how much money a buyer has to work with. Some mortgage products require a buyer to contribute a certain amount of money towards the purchase of a home.
For example, an FHA mortgage requires a down payment minimum of 3.5%. While there are ways to successfully negotiate a seller concession, it cannot be relied on that it is a guarantee a seller will be willing to help with a buyers closing expenses.