Lenders are nosy. But they're entitled to be, to a certain extent. If you were loaning a huge sum of money to someone who wasn't your best friend, wouldn't you want to know as much about that person as you possibly could? So, yes, lenders are entitled to ask some really personal questions. But there are limits. Here are three invasive things they get to ask you, and two they don't.

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Are You Involved in a Lawsuit?

Lenders ask this because they need to know if you have a potentially ugly judgment hanging over your head, which could impact your financial position or that of your business. What you need is a good explanation or even a statement from your lawyer explaining the merits of your case and why it is unlikely to damage you financially (you have sufficient insurance to pay a verdict, or you are the plaintiff, not the defendant).

What Are the Circumstances of Your Divorce?

Divorce is one of the leading causes of bankruptcy, so it's not extraordinary that your lender would want to know about yours. But not the juicy stuff, only the financial stuff. Who gets the house? Who gets the payments? Are they being made? The reason for this is that if you incurred joint debts, a judge's order can't make only one spouse responsible. So if your ex fails to make payment on a jointly-incurred debt, the creditor will probably come after you. In many cases, lenders won't approve a loan to divorced folks until it can be shown that each has been paying his or her share of the family debt. Per Fannie Mae's guidelines, "The lender is required to evaluate the payment history for the assigned debt after the effective date of the assignment. The lender cannot disregard the borrower's payment history for the debt before its assignment." If you are merely separated, you will need a legal separation agreement before you try to get a mortgage of any kind.

What Is Your Ethnic Background?

This is part of the declarations section at the end of a standard mortgage application. Lenders don't ask this so they can discriminate against you. In fact, they legally have to ask in order to prevent discrimination. You don't have to answer, but the lender then has to make a guess about your ethnicity and complete the form anyway. This is required by HMDA, the Home Mortgage Disclosure Act. HUD scrutinizes lenders in the US for patterns of discrimination, and if they see a lenders exhibiting a pattern of charging higher fee to people of certain ethnic backgrounds or declining their loan applications at a higher rate, they look closer and take action if they find discrimination.

And here are two questions that it's illegal for lenders to ask.

Do You Plan to Have Children?

Lenders used to ask women borrowers this all the time, trying to gauge whether the women were likely to experience a decrease in income or an increase in expenses. That is illegal under the Equal Credit Opportunity Act. In addition, lenders can't discount income because of your sex or marital status. For example, a creditor cannot count a man's salary at 100% and a woman's at 75%. And they can't assume that a woman will stop working to raise children.

How Is Your Health?

Lenders can't discriminate against people who are ill or are older, even if they are 80 years old and taking out a 30-year loan. It's none of their business. Finally, lenders may not discriminate against you because of your sex, age, marital status, race, color, national origin, receipt of public assistance or because you may have exercised your rights under consumer protection laws. They cannot include in their advertising or other documents anything that would discourage a responsible person from applying for a loan.