Qualifying For A Mortgage: What Mortgage Lenders Don’t Consider

Qualifying For A Mortgage Is Not Mysterious

As an applicant, qualifying for a mortgage can be an unnerving experience. Before trusting you with their money, lenders seem to probe every corner of your life. What are they looking for?

More importantly, what sort of black mark prompts underwriters to grab their “DECLINED” stamps?

It’s actually a fairly transparent process. Let’s explode some of the myths and uncover what really counts.

Race And Color

The standard home loam application asks for your race, color or nation of origin. You don’t have to answer this question. However, the the Home Mortgage Disclosure Act (HMDA) requires lenders to collect this information.

If you don’t provide it yourself, the lender must complete the form. If the lender completes this part of your application, he or she must report how your ethnicity was established — by looking at you or reading your surname.

So why ask? Race has nothing to do with qualifying for a mortgage. The Federal Financial Institutions Examination Council uses this data to detect discrimination. Lenders may audit their own files to prevent bias as well.

National Origin And Religion

Lenders must ask about your citizenship and immigration status. Foreign nationals are allowed to buy property with mortgages, even government-backed FHA loans.

However, you must have an Employment Authorization Document issued by the U.S. Citizenship and Immigration Services. If the EAD will expire within one year , and it has never been previously renewed, the lender will require additional information.

It’s flat-out illegal for lenders to ask about your religion.

Age And Date Of Birth

Lenders always ask your date of birth, because it’s a required input when pulling a credit report. There might be ten John Smiths in your area, but they’re unlikely to share the same birthday.

However, mortgage lenders cannot discriminate by age. Even if you’re 100 years old, if you qualify for a 30-year mortgage, you get a 30-year mortgage.

The main exception involves minors. The minimum age for being able to obligate yourself to a contract ranges between 18 and 21 in most states. In some states, the age of majority depends on whether you’ve graduated from high school.

The Federal Trade Commission (FTC) allows lenders to ask certain age-related questions when underwriting. “For example,” says the FTC, “A creditor could use your age to determine if your income might drop because you’re about to retire.”

Otherwise, lenders can include age in underwriting only if doing so favors those who are 62 years or older.

Gender And Marital Status

Clearly, it’s illegal for mortgage lenders to discriminate by gender.

Marital status is trickier. Mortgage lenders can’t ask if you’re widowed or divorced, though they are allowed to inquire whether you’re married, unmarried, or separated.

Being married (or not) can affect the way you take title to the property.

Your marital status especially matters in a “community property” state — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin.

In these states (and Alaska, if the couple “opts in”), debts taken on during a marriage obligate both spouses. One spouse cannot typically apply for a mortgage or buy property without the knowledge and permission of the other.

When buying with a government-backed loan in community property states, qualifying for a mortgage involves checking both spouses’ credit. Lenders must do this even if only one spouse applies for financing.

Divorce

You don’t have to disclose that you receive spousal or child support.

However, to count support payments as income on a mortgage application, you have to prove that you receive them reliably. You’ll also have to show that support will continue for at least three years.

If you pay or receive support from a former spouse, mortgage lenders are likely to ask for a copy of your divorce decree to verify the terms of the payments. You do have to disclose support you pay as a monthly debt.

Number Of Children

The Fair Housing Act outlaws discrimination on the grounds of “familial status.”

Mortgage lenders can’t ask about your family planning. And you cannot ever be asked if you’re pregnant — even if you obviously are.

However, lenders can consider expenses related to your children. For instance, the VA’s residual income calculation is based on household size.

In addition, some programs like USDA or HomeReady set income limits for determining eligibility. For most of those programs, the larger your household, the more income you can have and still qualify.

Disability

It is illegal to discriminate against people with physical or mental disabilities, or those who receive Social Security Disability Income (SSDI).

You can count Social Security payments as income to qualify for a mortgage as long as you’ll be getting it for at least three years. If you don’t need it to qualify, you don’t have to disclose this income.

Other Factors

There’s a whole list of other considerations that don’t generally appear on a loan application, but they may affect your ability to pay your mortgage. Just because lenders don’t ask about these things doesn’t mean you shouldn’t consider them.

• Your health — the Journal of American Medicine reports that 62 percent of bankruptcies are health-related.
• Whether you have health insurance — see above.
• Your utility bills — some programs like FHA do allow you to borrow more if you buy an energy-efficient home.
• How much it costs you to commute to work. Many Americans spend about 15 percent of income on commuting.

Now You Know ...

In many ways, qualifying for a mortgage is easier now than it has been for years. Programs that can help you get and stay on the housing ladder with low down payments and other incentives include:

• HomeReady from Fannie Mae — minimum three percent down payment and flexible qualifying criteria
• Home Possible from Freddie Mac — the same three percent minimum down payment
• Good Neighbor Next Door from the S. Department of Housing and Urban Development, which is designed to help law enforcement officers, pre-Kindergarten through 12th grade teachers, firefighters and emergency medical technicians with discounts of up to 50 percent off the list price of the home

And those are just a few programs that could get a loan officer inking up her “APPROVED” stamp for your application.

What Are Today’s Mortgage Rates?

To get an accurate mortgage quote, you’ll have to provide some information yourself. The loan amount, your credit rating, purchase price or home value, and other factors all affect what your loan will cost.