Why does my mortgage lender need so much information?

It’s not surprising that we have to provide information to lenders when we apply for loans. The shocking part of the lending process might be the amount of paperwork that is required, especially by mortgage lenders. It can really pile up – pun intended.

If you’ve ever wondered why mortgage lenders need so much of your information, we’ve got the answers for you. That way, the next time you apply for a mortgage loan, you’ll be prepared.

Why Does My Mortgage Lender Require So Much Information?

In 2014, the Consumer Financial Protection Bureau (CFPB) introduced Qualified Mortgage (QM), which is a loan category that protects lenders from being forced to buy back loans if borrowers default on their loans. To qualify for protection, lenders must follow the CFPB’s guidelines to determine a borrower’s eligibility for a mortgage.

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 a lender has for a homebuyer’s reliability, the more protection they have. And that proof comes in the form of lots of documents and questions.

The more paperwork lenders have on you, the better they can protect themselves.

What are the Qualified Mortgage Rules?

There are four rules that mortgage lenders must follow to qualify for protection:

• 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 must have specified limits on the borrower’s debt-to-income ratio and the number of upfront points and fees a lender can charge the buyer

What Documents Will My Mortgage Lender Require?

The number and type of documents that you will be asked for will vary depending on your mortgage lender. However, you will likely be asked for the following paperwork:

• 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 applicable)
• 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 Type of Questions Might My Mortgage Lender Ask?

Again, this will vary by mortgage lender. Also, remember that lenders are trying to gather as much information as they can to determine your ability to make payments. Here are examples of questions you may be asked:

• 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?

This is not an exhaustive list. But these types of questions can help lenders shed more light on your financial standing.

Final Thoughts

All that documentation that mortgage lenders want from you? It’s to help them make your home loan eligible for a qualifying mortgage – and protect themselves in the process. So, don’t be surprised or alarmed by the amount of paperwork you might be asked to provide when you apply for a home loan.

Get a Home Loan with TwinStar

At TwinStar Credit Union, we know how important finding the right home loan is. Our team of loan experts is here to guide you every step of the way, offering competitive rates, flexible terms, and exceptional service. Whether you’re buying your first home or looking to refinance, we’re ready to help. Learn more about our home loan options.