4 Fibs You Should Never Tell on a Mortgage Application
It may seem like no big deal to doctor the facts a little on your mortgage application — maybe saying your income is a bit higher or not being honest about where your down payment funds came from.
But lie on your mortgage application and you'll risk losing your home if you can’t pay your loan. And, mortgage fraud is a federal crime in the U.S. that can get you up to 30 years in prison and up to $1 million in fines.
There are loads of ways you can fudge your application, but here are four of the most common -- and the reasons you should really avoid them.
1. Saying a down payment loan is a gift
Homebuyers who find a great mortgage rate but don't have enough cash for a down payment may ask to borrow money from a relative.
But when you apply for a mortgage, all existing debts — including money owed to family — are evaluated by the lender. The lender wants to know that you can afford to take on a home loan, too.
Some applicants might be tempted to submit a phony "gift letter" claiming that a loan is really a gift that won't have to be paid back. That way, they can qualify for a bigger mortgage and buy a larger home.
If this deception is discovered, everyone involved could potentially be prosecuted for mortgage fraud. So, if you want to buy a house but are short on down payment money, you'd better open a savings account and start filling it.
2. Telling whoppers about your work history
Typically, lenders want to see that a mortgage applicant has had two years of steady employment, since this implies reliable income and presents less risk of that a homebuyer will default on a loan.
Some applicants embellish their employment records to claim longer employment periods and higher earnings, or they may even say — falsely — that they own a small business.
None of this messing with the truth is likely to work, since lenders will ask to look at tax records that confirm actual income and tax payment history.
Even if the fibbing isn’t found out right away, it could cause problems later if the homebuyer winds up with a mortgage that's too much to handle. Owners can lose their homes and seriously damage their credit history.
3. 'Forgetting' about a few debts
Debt-to-income ratio is a big part of how a lender determines a buyer's eligibility for a home loan.
Some people try to leave a few debts off their mortgage application, so it looks like they owe less than they do or that they have lower existing monthly debt payments.
But this tactic rarely works. Mortgage brokers and lenders always run a credit check, and any debt — including car loans, students loans, medical bills, banks and old credit cards — will be discovered immediately.
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4. Not being truthful about who's borrowing
Sometimes, friends or relatives may claim they're a joint borrower on a mortgage, if an applicant wouldn't qualify alone. If they really want to help things along, these sham co-borrowers may say they will live in the home and help pay the mortgage.
But fudging about this is a terrible idea.
When your name is on a loan, even if you think you're not really a borrower and won't be making payments, the loan will still be listed as an obligation on your credit report.
If your ever want to buy your own home or take out a big loan, you'll be limited by the additional debt. You'll also be liable if the person living in the home fails to keep up the mortgage payments.
