Q: Why does my credit union need to know so much about me to grant me a mortgage?
A: Exhaustive research into the financial, personal and credit history of home loan applicants is not unique to credit unions. Every home lender will request similar information for processing the loan.
Why are lenders 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.
Qualified Mortgage rules
Aside from the strict eligibility criteria, QMs come with the following rules:.
- Mortgages cannot have loan terms that exceed 30 years.
- Mortgages cannot involve negative amortization, or a condition that increases the amount owed.
- Mortgages cannot 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 my 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
- 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 can I expect?
Each of the following questions can substantially affect your financial standing:
- 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 fantastic 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 CSE. Call, click or stop by CSE today to get started!