Honesty Is the Best Policy in Mortgage Applications

Applying for a mortgage is tougher than ever, but the secret to success lies in providing an honest, complete application.

According to the Federal Bureau of Investigation’s “2006 Mortgage Fraud Report,” released in 2007, 30 percent to 70 percent of early mortgage payment defaults are likely linked to misrepresentations on the borrowers’ applications. High rates of default and increasing mortgage fraud are forcing lenders to go through each mortgage application with a fine-tooth comb. If you are considering applying for a loan, you need to be prepared to “run the mortgage application gauntlet,” according to a recent Realty Times article.

Lenders have already started to tighten underwriting standards by requiring higher credit scores and fewer blemishes on credit reports, and they are sure to review each statement on your application backwards and forwards, inside and out. “While it would be naïve to assume that we could narrow the cause of every foreclosure down to one single factor,” explains Jay Meadows, chief executive officer for Fort Worth, Texas-based Rapid Reporting, a fraud prevention company servicing the mortgage industry, “this FBI information clearly indicates that borrower fraud plays a significant role in the record number of defaults and foreclosures we’ve been seeing over the past couple of years.”

Most important to keep in mind is that lying on your mortgage application is against the law, not to mention the fact that it will also get your home loan request rejected quickly, given higher levels of scrutiny. Negotiating the loan application process successfully means passing all of the mortgage underwriter’s difficult “tests” successfully, which means being prepared, honest and complete. An application that is well-prepared will also speed up the process, so take a look at the tips below before you apply for a loan:

• Pull your credit report. This is a step that should be done when you have barely started to think about applying for a loan. Examining your report for errors or for blemishes that could delay your application or cause a rejection is critical. You can also find out if you’ve been the victim of identity theft, which could really cause problems, both financially and in your application process. Doing this early will also give you time to correct any errors and take steps to raise your credit score, such as closing unused credit cards or paying down debt. AnnualCreditReport.com is the only federally-regulated provider for a free credit report, and you can get a free report from each of the three major credit reporting agencies – Experian, Equifax and TransUnion – once a year.
  
  
• Understand what you can afford. Find out what you can afford by asking lenders and mortgage brokers how they determine your affordability. This is typically determined by a ratio of your income and your expenses. Ultimately, however, you are the ultimate judge of what you can afford. Remember that the cost of housing goes beyond paying your mortgage; you must also pay for homeowners insurance, property taxes, utilities, repairs, home owners’ association dues and other costs of owning your own home. You should also shop around with different lenders to find a program that is tailored to your needs.
  
  
• Save, save, save. Then save some more. Above all, you want to be sure that you can cover your bills in an emergency, such as an injury, illness or lay-off. Lenders also want to see that you haven’t spent your last dime in order to buy a home, and you will need to exhibit the ability to pay for your taxes and home insurance for months after buying your home.
  
  
• Prepare all documentation. Applying for a mortgage is probably one of the most paper-intensive processes of modern life. You will not only need to provide honest, complete answers on your application, you will need the documentation to prove it. You will need to provide information on your job position, job tenure, income, employment stability, assets and liabilities. You should have pay stubs, tax returns, rental agreements, divorce degrees, proof of insurance and any other documentation ready to back up your claims. The quicker you can pull all of this together, the quicker your application moves forward.
• Ask for help. Your broker or loan officer can help you complete your application correctly on the first try. Provide them with all of the complete documentation and be available to answer any questions. You can also ask for help from a mortgage counselor, financial planner, housing agency or social service agency.
  
  
• Cross all your T’s and dot all your I’s. If you have the help of a loan officer, you will be more likely to fully complete the application. Throughout the process, be sure to be thorough. For example, don’t just leave a space blank if it doesn’t apply, put “Not applicable” or “N/A.”
  
  
• Apply for one at a time. Online applications can make it easy to apply with several lenders at once, but each application typically includes a credit check, which ultimately affects your score and could send the wrong signal to a potential lender.
  
  
• Be available. Even complete and thorough applications could result in questions. Don’t complete your application and leave town or turn off your cell phone. Be ready and able to answer any of your lender’s questions.

<< Back to Home