By Kathleen Willcox | Feb 16, 2023
You’ve probably already told several white lies this week. Yes, really. When someone asks how you are, do you always mean it when you answer with, “Doing well”? Stretching the truth here and there is pretty standard.
But when it comes to applying for a mortgage, you’re required to be 100% truthful about the nitty-gritty details of your personal finances, work history, credit score, and more. And if you stretch the truth, even by a little, you could land in hot water.
The consequences of telling seemingly harmless lies during the mortgage application process are serious. Worst-case scenario: You’ll be charged with mortgage fraud, and the penalty can include a maximum sentence of 30 years and a $1 million fine.
Shockingly, though, plenty of people do it. Last year, an estimated 1 in 131 applications contained some form of fraud, according to the 2022 Mortgage Fraud Report from Core Logic.
So which fibs are most commonly floated during the mortgage application process? Some of the fiction below may seem innocuous, but the consequences of getting caught aren’t worth it.
1. Claiming you’ll live there but are planning to rent it out
If you’re buying a house to use as a short- or long-term rental, you need to spill the beans.
“A white lie I see a lot is when buyers aren’t honest about how they plan to use the property,” says Jessica Lane, president of Greenwich Luxe LTD in Greenwich, CT. “You cannot buy a home as an end user and rent it out as an income property. This is a little white lie that can amount to mortgage fraud and can be a felonious crime, punishable by jail time and/or major fines.”
2. Insisting you pay your bills on time, despite those late fees
If you’ve missed a credit card payment or mailed in a few loan bills late, you need to share that information. Same goes for a less-than-ideal credit score. And yes, these two issues often go hand in hand.
“One of the most common and often overlooked things I see with buyers is when they omit their history of late payments and credit score,” says Josh Wilson, a licensed real estate agent and co-founder of That Florida Life. “Mortgage lenders generally require buyers to provide a history of their credit scores. Omitting this information can immediately disqualify buyers from getting a loan, especially if their credit score is lower than the benchmark minimum.”
Wilson says that explaining the situation honestly won’t necessarily disqualify you from getting a mortgage—but getting caught in a lie definitely will.
3. Fudging the source of funds for a down payment
A lot of homebuyers—especially younger ones—receive help from family to foot the bill. And chances are, that will be fine, as long as you’re honest about where the money is coming from.
“You can’t skip over that,” says Matthew Roberts, chief operating officer of My Choice Financial. “Whether it’s a gift or you borrowed it and plan to pay it back, the source must be disclosed.”
4. Omitting debts, even the small ones
It can be tempting to gloss over car loans or student-loan debt on a mortgage application. But don’t give into temptation!
“Total debt load does affect the size of the loan you get,” says Bridget Blonde, a licensed real estate agent for Nest Realty. “But trying to hide some of your debt will affect getting the mortgage in the end—and when the cover-up is discovered, you’ll be in a whole bunch of other trouble.”
5. Describing your puppy as a medium-sized dog
If you’re buying a condo or an apartment, or moving into a housing community with rules around pets, don’t try to slide your oversized Rover in under the radar.
“If you have multiple pets or large pets, you need to be upfront about this,” says Gerard Splendore, a broker at Coldwell Banker Warburg in New York City.
Chances are, the board will find out eventually. Then you’ll have to choose between yourself or the pet. Or you might just be kicked out for the fib in the first place.
6. Mischaracterizing your financial past
If you have a spotty financial history—even if it’s a decade or more in the past—you need to ‘fess up.
“I once had a buyer not disclose a bankruptcy from years ago,” says Splendore. “That lie turned into a big issue, even though their partner had a great credit score, they had no problems with debt, and had an income of more than $500,000.”
7. Fibbing about employment history and job prospects
Claiming to be employed when you’re not is an obvious no-go, but even seriously interviewing for another job must be discussed.
“If a buyer switches employers at any point in the buying process, they may lose their loan,” says Kristen Jurevich, a broker associate at Intero Real Estate Services in Hollister, CA. “Human resources will be contacted, and if they say that the person is no longer with the company, they’ll lose the loan.”
The most important part of a mortgage lender’s job is investigating every fact you share and assessing whether there are any reasons to doubt you or your assets.
Do you have more questions about the home-buying process? Contact our Team today for more information.