7. Do you offer prequalification and preapproval?

Getting prequalified for a mortgage can help you understand what rate you might get from a lender. And getting preapproved can help you stand out as a prospective home buyer. As you shop for a mortgage, ask lenders if they offer these options.

Common mortgage application questions

Before approving you for a mortgage, your lender will want to fully understand your financial situation. Expect to answer questions about the following during the mortgage application process.

Employment and income

• Where do you work?
• How much do you make?
• How long have you been at your job?
• How is your income derived — steady salary or irregular income? (If your income varies, or is based on bonuses or commissions, you might need to provide details)
• Documents to bring: copies of tax returns, pay stubs, and W-2s (or 1099s if you’re self-employed).

What works in your favor: You can prove steady employment (two or more years) with the same employer or in the same line of work.

What complicates an application: You are self-employed or a contract worker. Getting a mortgage when you’re self-employed often requires even more documentation, like profit and loss statements from your business or 1099 forms if you work on a contract basis.

Debt

• What recurring debts do you have?
• Documents to bring: alimony/child support payments, credit card statements, student loan statements, and auto loan statements.

What works in your favor: Your monthly debt payments account for 36 percent or less of pretax income, and you haven’t made a major purchase (like a car) recently.

What complicates an application: Your credit cards are maxed out, your monthly debt payments account for more than 36 percent of your pretax income, you’ve opened a number of credit cards recently or you have large credit lines you’re not using.

“You should be ready to explain any discrepancies in your credit history such as late bill payments, being turned over to a collection agency or a bankruptcy,” says Don Boop, senior mortgage advisor at Linear Home Loans, based in Orange County, California. “It’s a good idea to have dates, amounts and causes ready if you think these situations will come up.”

Savings and assets

• How much money do you have in the bank?
• How much do you have saved in 401(k), stocks, bonds, mutual funds and other investment accounts? (You will be asked to provide copies of brokerage statements.)
• Documents to bring: bank statements, retirement account/pension plan statements, taxable brokerage account statements, property titles.

What works in your favor: You can show that, after closing, you will have at least two months’ worth of mortgage payments in the bank.

What complicates an application: You will have little cash after the down payment and closing costs.

Down payment

• What is the size of the down payment?
• Where does the down payment money come from — is it all from your savings, or did some of it come as a gift from family or a grant from a nonprofit?
• Documents to bring: Bank and brokerage statements, gift letters from family or grant information.

What works in your favor: The down payment comes from savings or from equity from a home that you’re selling. Even better: The down payment is 20 percent or more.

What complicates an application: You have trouble documenting where your down payment money comes from.

Loan purpose

• Are you borrowing to buy a home or to refinance the current mortgage?
• If it’s a refinance, do you want to take cash out at closing? If so, how much? Do you plan to use the cash to further your financial goals, such as paying off credit card debt or remodeling your home?

What works in your favor: The loan is for a home purchase or a simple rate-and-term refinance, without taking cash out.

What complicates an application: You’re getting a cash-out refinance.

Property use and type

• What’s the address?
• Do you plan to live in the house year-round, or is it investment property? Is it your primary residence or a second home? (Always be honest about your intentions. If it’s primarily an income-producing property, for instance, you’ll need an investment property loan, which has different terms than a mortgage for a home. And second-home mortgages differ a bit than those for primary residences.)
• Is it a house, duplex, condominium or co-op?

What works in your favor: The house is a detached single-family home to be used as a primary residence.

What complicates an application: The property is a duplex or condominium, or will be used as a vacation home or a rental property.

 Co-borrower

• Are you applying for the mortgage with a co-borrower (such as a partner, spouse or other family member)?

What works in your favor: If your credit needs work, a co-borrower with good credit and steady income can boost your chances of getting approved, and potentially for a bigger loan.

What complicates an application: A co-borrower with poor credit or a higher debt-to income (DTI) ratio could hurt your approval odds.

Closing timeframe

• How quickly do you want to close?

What works in your favor: If you suggest a reasonable timeframe, most lenders can accommodate your desired closing date.

What complicates an application: If you need to close quickly, it helps to be as organized as possible ahead of your application, and responsive to any questions the lender might have.

Note: “Complicates” doesn’t mean “impossible.” It means you might have to provide more documentation, that the loan decision might take more time, or you might have to pay a higher interest and or fees. In other words, you might face more hurdles and questions than a borrower with a simpler loan application.

Questions a mortgage lender should never ask

While the list above may make it seem like mortgage lenders can ask you anything they want, there are some legal limits, according to Darrin Q. English, Senior Community Development Loan Officer for Quontic, an online bank. These questions, he says, are on his “do not ask” list (and that of any law-abiding lender):

• Sexual orientation
• Disabilities
• Family expansion plans (a lender can ask how many children you currently have and their ages, but they can’t ask if you plan to have more or discriminate based on familial status)
• Political or religious beliefs
• Medical history

In addition, although a lender can ask gather factual information about some things (your gender and marital status), under the Fair Housing Act and the Equal Credit Opportunity Act, it can’t discriminate based on race, religion, color, age, marital status, sex or national origin. There may be other protected classes enforced by your state, as well.

What to expect after you apply for a mortgage

Hurry up and wait. Your lender’s underwriting team may approve or deny your mortgage application within 1-2 business days, but be sure to ask your lender about the typical timeline. Preapproval might come fairly quickly, but you won’t get final approval until you actually have an accepted offer on a home, which the lender will probably want to appraise. In general, it takes around 30-45 days to close on a mortgage loan, though this could also vary by lender.

Once you complete your application, avoid making big purchases or financing anything else until the closing. Major financial moves like these can affect your credit score, as well as increase your DTI ratio — making you seem like a riskier prospect. These changes might require resetting the underwriting process. Or you might be conditionally approved, which often means the lender wants more information from you.

Of course, your lender could deny your mortgage application altogether. Discouraging, but you can always shop around for another lender, or see if there are specific issues you can resolve quickly, to get the loan for your dream home after all.