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Financial Privacy and Home Loan Process

By Wayne Johnson

Real Estate Agent with Coldwell Banker D'Ann Harper REALTORS® TX License #0566780

February 17, 2010 12:36 AM

Financial info
Your financial history is examined during the home loan process. You give up your right to financial privacy when you ask a lender for a loan. Do you want the loan or not?

This is a real buzz kill for some, I know.I watch the faces sometimes when I ask clients to speak to a lender about pre-approval for a loan before we get too far along in the home buying process. Lenders ask questions to make a judgment as to if this is a good loan to make or not. Some buyers believe the amount of information requested is too much.

I'm not a mortgage lender and have not received any training in how they conduct their business. But I have seen enough transactions to figure out that the lender is most concerned about their ability to get their money back. And there is nothing wrong with that. If borrowers fail to pay lenders, there are fewer lenders willing to lend money. Without money, fewer of us will be able to buy a home.

Home buyers remember:

You are asking someone who probably does not know you to lend you money. Usually lots of money for something you want, that they cannot easily convert to cash should you fail to pay them back as agreed.
Since the lender may not know you, they must estimate the likelihood that you will pay them back as agreed.
Their judgment is suppossed to be done in a non-discriminatory manner.
Your credit score is your record of how you handle credit. It's yours.
Your income, or capacity to repay the loan, is another non-discriminatory factor.
When the lender asks for explanations of what may be blemishes on your credit history, it's not an invasion of your privacy. More often than not, I think they are looking for reasons to approve your loan rather than deny it. However, they have years of data that help them project the credit profile of someone likely to fail to pay as agreed.
Answer financial applications completely. Many home loans in the US are guaranteed by government entities. Failing to answer questions truthfully can lead to serious legal problems for borrowers.

I've found it's better to know up front both how much a lender is willing to lend, and how much clients are willing to invest in their new home. No need looking at a $300,000 house if the buyer only wants to invest $15,000 as down payment on a conventional loan, and no lender will provide a mortgage of more than $200,000.

Lenders get into your financial history to make a judgment as to how likely is it they will be repaid. They are getting into your financial privacy, but if you qualify for the loan, isn't that a reasonable trade off?

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