After many months of dreaming, open houses, hundreds of drive-bys, and hours and hours of viewing homes online you have finally found the perfect house for you. However, being a novice first time home buyer in this situation, you now begin to wonder "where do I go from here?" What’s involved in buying a house, what information will be needed, are there programs for first time home buyers and can I qualify for a home mortgage loan?
First things first, if you haven’t already spoke to a loan officer, this is almost your next step. Your next step is to prepare yourself for completely opening yourself up for someone to look inside your financial, credit and other personal records. If you have not had to do this before, this can be an unnerving process. There are many questions that you’ll be asked when dealing with a mortgage lender, whether they be a bank or other financial institution.
Questions A Loan Officer May Ask That Seem Too Personal
Are you buying this home from a friend or relative?
Why is this important? Friends and relatives have a vested interest in whether you qualify for a loan or not. They may be more inclined to “influence” the approval process somehow. One way relatives like to help is by providing sources of cash that you might not have otherwise if you were buying this home from a complete stranger.
You can still buy a home from a relative or friend, you just may have a little harder time qualifying and the underwriter is going to look more closely at your loan file than if you were not buying this home from someone you know.
Have you had any job gaps?
When determining your eligibility for a mortgage, you’ll be asked about your employment history, what type job do you have and length of time employed, have you had multiple jobs in the previous years, among other possible questions. Your answers to these questions will assist the loan officer in calculating your income; it will also give them some clue as to how your file is presented to an underwriter to get it approved.
If you have had gaps be prepared to explain them. Make sense explanations get approved, made up stories that can’t be substantiated with documentation do not get approved. So keep this in mind if you are thinking of buying a home in the near future – make sure what you do for employment makes sense and can be documented. For example, one legitimate reason for a job gap is college education and periodic availability for part-time work.
Tell me about your credit report, scores and any credit problems.
Your credit and credit scores are very important to your qualifications for a mortgage. Good credit history doesn’t always translate into good credit scores. An underwriter will be interested in how many credit accounts have been opened and how many credit inquiries you have which could indicate questions about credit worthiness.
Do not try to hide a bankruptcy or foreclosure. Disclose both of these early so that your loan officer can think in those terms right away. If there are many inquiries, but no new accounts, this can signal an alert to your bank officer or mortgage lender a need for careful investigation when considering loan approval.
Are you making payments to anyone or anything that is not on your credit report that you would like to declare?
In this case you may be paying for child support or alimony and not mention it on your own thinking that it is a real debt. Chances are that if you are paying child support then something will likely show on your credit report which could be a deal killer if your loan officer wasn’t aware of it upfront.
Where is your money for down payment and closing costs coming from?
Your assets will be taken into consideration as to your ability to make a down payment and pay closing costs. Assets are your savings, checking, 401K, money market, stocks, bonds, savings bonds, gifts from family, local/state/federal government grants and IRA’s.
You may be able to use a gift, so go ahead and tell your loan officer is you are going to be getting some help from a parent or relative for your down payment. This will affect the types of loan programs your loan officer can look to qualify you for. You’ll also need an explanation for any recent large deposits made to your bank account. Typically large deposits have to be explained if they are within 2-3 months of your mortgage application and show on your bank account.
(Hint: if you are going to be getting some help with down payment money and don’t want to show it or explain it, put it into your account several months in advance so it is there when your loan officer gets your bank statements.
How do you make your money?
This question is very important as the loan officer needs to know if you are self employed or work someone and get a regular paycheck and W-2. Is any overtime involved and how often does this occur and is it dependable – have you been getting it for 2 years? Are bonuses part of your benefits? Do you have a second job and if so, has it been for at least two years? Are you employed in a Part-time job and have you held this for at least two years? Do you get Social Security or Disability? Do you receive any other non-taxable income, pension or other retirement income? Are you receiving any benefits from annuities or investments where you are paid regularly and that will continue for at least 3 years?
Are you getting any other income other than from your job that you would like to declare?
A loan officer may ask this so that in the case that you are just on the edge of qualifying for a loan program and a particular loan amount they may be able to use other sources of “household” income to help you qualify. Perhaps another person can also be on the mortgage with you as a co-signer who can bring more income to the deal.
Are you renting or do you own a home?
If you are renting, how do you pay your rent – by cash, check or money order? Is it paid to a landlord or management company and can you get copies of your cancelled checks from your bank? These are all important questions for determining the type of loan program you can qualify for and it tells the loan officer how they must prepare your file for underwriting.
Your loan officer should be trained to know that if you are paying a private landlord who owns the home that they ought to pull a tax record on the home to show that they are in fact the owner and landlord. The loan officer should also ask you for copies of your cancelled checks.
All of this might seem so complicated and it could be time-consuming to you. The thought may even pass through your mind about whether all this effort and personal disclosure is worth it in completing a mortgage loan application. Only you can answer this question for yourself. At very least now, you’ll be more knowledgeable of the procedure and of some of the rather personal questions that may come your way when applying for a mortgage. Good luck and tell the truth.