If you’re in the process of applying for a mortgage, you may be asking yourself—why does my mortgage lender need to know so much about me?
Extensive research into the financial, personal and credit history of home loan applicants is standard. Every home lender will request similar information for processing the loan. However, you may still be wondering why lenders are so nosy?
Actually, they’re not. They’re only trying to satisfy the criteria for a protected mortgage or a Qualified Mortgage.
In January 2014, the Consumer Financial Protection Bureau (CFPB) introduced the Qualified Mortgage (QM), a loan category that protects lenders from being forced to buy back a loan if the borrower defaults. To qualify, the lenders must follow the CFPB’s guidelines when determining a buyer’s eligibility for a mortgage.
Essentially, lenders are protecting themselves through this process. That’s why most lenders will try to make a home loan eligible for a QM whenever possible.
Lenders must be able to prove they followed the CFPB’s ability-to-repay guidelines when granting a mortgage to a homebuyer. The more proof the lender has for the buyer’s reliability, the more protection they have. That’s where all that questioning and document-digging comes into play.
While the QM is designed to protect the lender, it will also protect you, the borrower. When a lender is super-careful to determine you can easily carry a loan’s terms, you’re protected from being stuck with a mortgage you can’t really handle.
Qualified Mortgage Rules
Aside from the strict eligibility criteria, QMs come with the following rules.
- Mortgages can’t have loan terms that exceed 30 years.
- Mortgages can’t involve negative amortization, or a condition that increases the amount owed.
- Mortgages can’t include balloon payments, or larger payments only going toward the loan’s interest.
- Mortgages have specified limits on the borrower’s debt-to-income ratio and the amount of upfront points and fees a lender can charge the buyer.
Which documents will your mortgage lender ask for?
You will likely need to provide the following documents for your lender.
- Financial account statements from the last two months
- Tax returns from the last two years
- A list of your assets
- Your landlord’s contact information (if you’re a renter)
- A gift letter from anyone who gave you money to help cover the down payment and closing costs
- Your credit report
- Recent pay stubs
- Photo identification
What kind of personal questions will your mortgage lender ask?
Lenders will need to look beyond the paper, especially if they’re trying to grant you a QM. While these questions might seem intrusive, each one of them can substantially affect your financial standing and is something the lender needs to know about.
- Have you been through a divorce? If yes, what were the terms?
- Have you ever been involved in a lawsuit—on either side of the bench?
- Have you ever sold a home through a short sale?
- How long have you been employed at your current job?
While shopping around for a mortgage, whether it’s a QM or otherwise, remember to ask us about our home loan options. We offer better rates and quicker closings than most banks, along with the personal service and attention you’ve come to love and expect at Partner Colorado. You can also check out our Go-To Guide for Home Buyers to find essential tips about the home-buying process.