What makes Christmas and New Year’s better than friends, family, and savings? How about owning a home? The holiday season is a cheerful time spent with family, but for those of us with families
7 Fibs That Will Flush Your Home Buying Chances
Let’s start with the blunt truth: Getting a home loan and buying a house requires a lot of money. The information put on your home loan application will have a direct impact on whether you get approved and how much money you’ll be approved for. There isn’t a first-time homebuyer on the planet who hasn’t thought about stretching the truth to ensure approval. But before fibbing on such an important financial document accompanying a life changing financial commitment, let’s cover the seven fibs that will flush your home buying chances down the drain.
#1: The Primary Resident
Who will live in the house? No, seriously, who?
The truth regarding the primary resident is one of the most common lies found on a home loan application. For example, John Doe applies for a home loan, stating the property is going to be his primary residence when he actually plans to rent it out as an investment property. Why would John do such a thing? He wants to save money because lenders charge higher default rates for investment properties.
What’s the harm? For starters, from the lender’s perspective, stating an investment property is to be your primary residence when it’s not is like stealing money. It forces the lender into taking on more risk than they knowingly agreed to, and risk costs money.
How would the lender know the difference? They are not dumb! Don’t assume they won’t find out your new primary residence isn’t so primary. Several factors can raise a red flag, from a home in a neighborhood that doesn’t match your socioeconomic profile to mortgage statements being sent to a different address. Once a flag goes up, an investigation is likely to ensue.
#2: Your Income
Exaggerating your income on a mortgage application is hard to do, and stretching the truth about how much you make is a sure way to blow your application. Lenders thoroughly check your income information. Some of the financial paperwork you will need to supply includes:
Your tax return
Your bank statements
Your W-2 forms
If the documentation doesn’t support the income you’re claiming on the application, it will raise a red flag that results in a fast no. Self-employed applicants sometimes think they can stretch the truth of their income, but remember your W-2 tells all. It will be checked. It will be confirmed.
#3: Down Payment Funds
Tight for cash and getting your down payment from friends or family? The origins of your down payment funds are important. When you apply for a mortgage, you will be required to disclose all of your debt obligations on the mortgage application, and that loan from friends or family is one of them.
If your down payment is in the form of a gift or assistance program, the lender will want confirmation. They’ll ask for a letter stating the funds are a gift and will not need to be repaid. Don’t fib about where your down payment comes from, it could sink your application.
#4: Undisclosed Incentives
When it comes to a real estate transaction, it’s not uncommon for a seller to sweeten the pot by making a side deal. In most cases, a side deal comes in the form of a rebate or kickback when the asking price is greater than the buyer is willing to pay.
The seller might offer to cover closing costs or the buyer’s down payment. While there’s nothing wrong with incentives, undisclosed incentives can quickly turn a home loan into fraudulent activity when they’re handled outside of the official sales transaction without the lender’s knowledge or consent.
What’s the harm in undisclosed incentives for the lender? They effectively trick the lender into financing for more than the home’s actual sale price. As a result, the lender takes on more risk than anticipated, which means recovering the money in the event of default becomes a much larger, more costly task.
#5: A Fake Co-Borrower
Your credit score and employment status are in good standing, but your income is coming up short for mortgage approval, and you know it. It might be tempting to ask a relative or friend to pose as a bogus co-borrower, but this fib is deadly.
The co-borrower will state they intend to occupy the residence and contribute toward the mortgage payments. Their income will be counted toward the qualifying for the home loan. But the co-borrower is really the person who gets hurt here. The loan will be listed on their credit, even if they don’t live there, and should you default, they’re stuck with the loan.
#6: Employment Status
Lenders want to see a minimum of two years of stable employment before they approve a home loan. Changing jobs is fine, as long as you stay within the same field. Thanks to the unsteadiness of the job market, a lot of first-time homebuyers struggle with this specific qualification. It might be tempting to stretch the truth when it comes to reporting employment, but it’s a bad idea.
If the employment you claim on your application is not backed on your tax return, it’s a serious red flag that will get your application kicked out. So claiming to own a nonexistent small business or having a friend pose as an employer isn’t a smart idea.
#7: Hidden Liabilities
Debt-to-income ratio is a key to home loan approval. Some borrowers will actively omit listing some debts on their home loan application in an attempt to make it appear as if they owe less than they actually do. This fib rarely works because lenders pull your credit history.
When you sign the mortgage paperwork, you will sign off on a statement saying the information you have provided is as accurate as possible. Using any of these seven fibs will flush your home buying chances, creating an inaccurate application. And an inaccurate application is mortgage fraud!
The best financial decision you can make is to tell the truth. If your application is denied, find out why and work on rectifying the things that stopped the lender from saying yes.
As a licensed real estate agent in Virginia, Mario provides Strategic Marketing and Transaction Management services to his clients that is built on Dedication, Communication, Determination, & Trust.....