Your Lender Is Nosy (And Sometimes Rude)
Million of mortgage applications are given to lenders each year. Some are for buyers of homes, others are for homeowners looking to refinance. All can feel “intrusive”. As part of the steps of a standard mortgage application, mortgage lenders gather basic information about an applicant and sometimes ask questions which can seem pretty personal. The majority of the questions are required as part of your approval. You can’t get an FHA mortgage approved if you don’t disclose your social security number. Similarly, you can’t get approved for a HomeReady™ home loan if you don’t disclose the source of your downpayment. While you don’t have to answer every question from the bank, avoiding certain questions can preclude you from getting approved.
Here’s a quick list of the questions you should expect to answer, and the questions you can choose to avoid.
1. “What’s Your Marital Status?”
As part of the mortgage approval process, your lender will ask whether you’re married, single, or divorced. So, why does this matter? There are several reasons why. The first reason that your marital status matters is that persons who are divorced often pay or receive alimony and/or child support; and, anything affecting your monthly income or debts requires review by a mortgage underwriter. You may also be asked for a copy of your divorce decree. The second reason is that, in states which are “community property” states, the debts of both spouses must be considered when applying for a government-backed mortgage — even if the application is in the name of one spouse only. There are currently nine community property states. They are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
Finally, lenders want to know your marital status because different states have different rules about how married persons can take title to their homes. Lenders want to be sure that your mortgage documents get prepared correctly.
2. “What Is Your Age?”
Lenders are prohibited from discriminating against borrowers, including against the borrower’s age. The Equal Credit Opportunity Act (ECOA) ensures all mortgage applicants get fair treatment. So, why does your lender want to know how old you are? It’s for accuracy on your application. Lenders want to know your age because “age” is an input when retrieving a person’s credit report; and, also because lenders need to document that you are at least 18 years of age. If you are not 18 years of age or older, you may not be able to legally obligate yourself to a home loan. This would void your mortgage, if it was discovered after-the-fact.
3. “Are You Currently Involved In A Lawsuit?”
After your employment and income history is requested, tucked away on the last section of your mortgage application, is a series of questions known as “Declarations”. Mostly “yes-or-no” questions, Declarations includes the question about whether you are currently involved in a lawsuit, where “involved” means that you are either the plaintiff or the defendant. Answering “yes” to the lawsuit question won’t often get your loan turned down, but it will trigger a request for additional inflation, including:
Your status (plaintiff or defendant)
- The amount of money involved
- The extent of your insurance coverage
- The existence of counter-claims
- The strength of your case
The reason lenders care about this is because lawsuits carry the potential for monetary loss, and monetary loss can lead to mortgage default.
4. “What Is Your Ethnicity?”
Also in the Declarations section is a question about ethnicity. As a mortgage borrower, you are not required to answer this question and your mortgage approval will not be affected if you choose to leave this question blank. The reason why mortgage lenders ask about your ethnicity is so that the government can track whether mortgage application’s for a given ethnicity are being approved or turned down at an above-average rate. When borrowers provide ethnic background information, the government can do a better job uncovering patterns of discrimination.
5. “How Many Children Do You Have, And What Are Their Ages?”
Lenders will ask whether you have children, and it will want to know their ages. This is because children can play a role in your loan approval and the lender won’t want to miss it. For example, when you’re applying for a VA mortgage, an underwriter will verify your household’s monthly residual income where “residual income” is the money left over after your bills are paid each month. Households with 2 children have reduced residual income requirements as compared to households with 5 children. Therefore, having children in your home can change your ability to get mortgage-approved. There are other programs which use household size to help determine your eligibility. The 100% USDA home loan is one of them.
Questions Your Lender Cannot Ask
Under the Equal Credit Opportunity Act, there are certain questions a lender cannot ask as part of the mortgage application process. For example, lenders may not ask about your health as part of your mortgage application. A mortgage approval decision based on a person’s health could be considered discriminatory by the government. Lender are also prohibited from asking about your family planning.
Even if a borrower is visibly pregnant, the lenders cannot ask about the pregnancy as part of the mortgage application, nor can it ask whether one or both parents will “stop working” once a child is born.
For purposes of the mortgage approval, mortgage lenders are instructed to assume that all working parents will continue to work after childbirth, at the same number of hours and income. To make a mortgage application decision based on an alternate scenario could be considered discriminatory and several lenders have paid large fines on this matter this decade.