Can a lender request information from a relative when you apply for a mortgage?

By Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience

Edited by Michael Jensen, Mortgage and Finance Guru

Updated February 6, 2021

The answer to your question depends on if the relative plays a role in you qualifying for the mortgage or buying the house. There are multiple scenarios when a lender may request personal and financial documents from a relative when you apply for a mortgage, which we outline below.

The relative is a co-borrower or co-signs the mortgage. If a relative is a co-borrower on your mortgage or co-signs the loan, the lender requests the same information from the relative that they request from you, the borrower. In this case, the relative is required to provide bank statements, tax returns, W-2s, paystubs, debt account statements and possibly additional information. The relative is also required to submit a loan application with extensive personal, financial and employment information.

Because a co-borrower or co-signer is legally responsible for the mortgage, the lender is required to make sure that they have the financial ability to afford the monthly payment and repay the mortgage over time. This lender requirement applies regardless of if the relative lives or holds an ownership interest in the property. In short, if you ask a relative to be a co-borrower or co-signer on your mortgage, the relative must be comfortable providing extensive personal, financial and tax information.

The relative provides a down payment gift. If you receive a gift from a relative to pay for all or part of your down payment, the lender may request information, including the relative’s bank and brokerage account statements, to verify the source of funds for the gift. The relative is also required to provide a gift letter that outlines the terms of the down payment gift. Lenders request this information to ensure that the gift is truly a gift and not a loan that the borrower is required to repay.

Lenders review the gift provider’s financial information to ensure that she or he has the resources to provide the gift. A relative that provides a down payment gift is typically asked to provide less information than a co-borrower or a co-signer, but she or he should still be prepared to share certain financial documents.

The relative is a non-borrower household member. For certain loan programs, including the HomeReady Mortgage Program, you can use income from a non-borrower household member such as a relative, to support your loan application. For example, if a mother lives with her daughter and the daughter is applying for a mortgage, the mother’s income can be used to help the daughter qualify for the loan. The relative is not a co-borrower or co-signer but her or his income is a compensating factor to help the borrower get approved. In this case, the lender usually requests summary information on the relative’s income and employment.

The relative has provided the borrower a loan. If you have received a loan from a relative you are required to provide summary loan terms to the lender including the amount, term, interest rate and monthly payments. In some cases the lender may request bank statements or cancelled checks from the relative to confirm that you are making the required loan payments.

You have lived with or rented a property from a relative. Lenders usually require the you provide a residence history when you apply for a mortgage. If you lived with or rented a home from a relative in the two years before you apply for the mortgage, the relative may be required to provide documents that verify any rent payments you made.

In closing, if the scenarios above do not apply to you, then the lender should not randomly request information from a relative when you apply for a mortgage. Only in situations when the relative is involved in you qualifying for the mortgage should your relative be required to provide any personal or financial documents.

Please note that mortgage qualification guidelines vary by lender and loan program, especially if a relative is involved in the application process.  We recommend that you contact multiple lenders in the table below to understand how they would handle your personal situation.  Plus, shopping lenders is the best way to save money on your mortgage.

Sources

"B2-2-04, Guarantors, Co-Signers, or Non-Occupant Borrowers on the Subject Transaction."  Selling Guide: Fannie Mae Single Family.  Fannie Mae, June 5 2018.  Web.

"B3-4.3-04, Personal Gifts."  Selling Guide: Fannie Mae Single Family.  Fannie Mae, September 29 2015.  Web.