Navigating the mortgage labyrinth can feel like a high-stakes game of chess. Youre keen to make your move towards homeownership, but what you say to your lender could tip the scales in or out of your favour. Ever wondered if theres a little too much sharing going on during those meetings?
Securing a mortgage is a pivotal step in your financial journey, and its crucial to present yourself in the best light. But are you aware of the conversational landmines that could jeopardize your chances? Lets dive into the dos and donts of lender conversations, ensuring youre armed with the right strategy to checkmate your way to a successful loan approval.
Getting approved for a mortgage loan can be a stressful process. You have to gather paperwork, fill out forms, and answer many personal questions about your finances. It’s understandable to want the process to go smoothly. However, saying the wrong thing could raise red flags and jeopardize your loan approval.
Here are 15 things you should avoid saying to a mortgage lender when applying for a home loan:
1. Lying or providing false information
This is number one for a reason. Lying on a mortgage application is fraud and can lead to severe penalties, including jail time. Even if you don’t get caught lies and omissions will likely surface when the lender verifies your documents. Just be honest—your loan officer can help you work through obstacles if needed.
2. “What’s the maximum I can borrow?”
Asking how much you’re approved to borrow makes you seem like an uninformed potentially reckless borrower. Aim to only borrow what you need based on a realistic budget. Maxing out your limit now could prevent future goals like starting a family or business.
3. “I sometimes forget to pay bills.”
Consistency is key when managing a large debt like a mortgage. Admitting you forget bills shows disorganization and could indicate missed payments on your credit report. Those are red flags that may lead to a denied application.
4. “I just opened a bunch of new credit accounts.”
It’s tempting to buy new furnishings, but avoid new debts when applying for a mortgage. Numerous new credit accounts look reckless and could alter your debt-to-income ratio at the last minute, risking your approval. Make those big purchases after closing.
5. “My credit cards are all maxed out right now.”
Carrying high balances on most cards raises concerns about how you manage debt. Lenders often run a final credit check right before closing so major new debts could jeopardize your approval. Keep card use modest until you have the keys in hand.
6. “I change jobs pretty often.”
Lenders want to see at least two years of stable employment to ensure reliable income for mortgage payments. Frequent job changes may signal instability and cast doubt on your ability to pay.
7. “I might switch from salary to commission soon.”
Your current pay structure helps determine approval, so drastic changes are concerning. Transitioning from steady salary income to unpredictable commission introduces too much risk of instability for lenders’ comfort.
8. “I’m getting a cash gift for the down payment.”
Gifts can be allowed for certain loans, but specific rules apply to document the source. Discuss requirements with your loan officer before accepting money to avoid rejection. Never take undocumented gifts—that’s mortgage fraud.
9. Asking about the foreclosure process
Inquiring about foreclosure makes the lender think you expect to default on payments. Even if just curious, save those questions until after your loan closes to avoid raising red flags upfront.
10. “What is a credit score?”
Not knowing your credit score signals that you may not understand credit and are unprepared as a borrower. Monitoring your score and reports should be part of your routine long before applying for a mortgage.
11. “Just tell me how much I can borrow.”
Focus first on determining your budget and actual needs, not the upper limit. Qualifying to borrow a large amount doesn’t mean you should—or that it would fit your lifestyle. Research guidelines like the 28/36 rule.
12. “The loan terms don’t matter as long as I can get this house.”
Downplaying critical loan components like rates and fees suggests poor financial planning. Mortgage terms impact your long-term costs and should align with your goals. Don’t get blinded by a property—the loan itself is a huge commitment.
13. “I plan to flip this place quickly, so I just need short-term financing.”
Mortgages are designed for long-term primary residences, not quick turnover. Stating plans to flip indicates speculative motives rather than commitment. Underwriters may see you as a default risk if your plan falls through.
14. “I might take a break from work soon, so my income could drop.”
Lenders need to see reliable, stable income to ensure you can manage payments. Any mention of your job situation changing shortly undermines that and could lead to a denial of your application.
15. “Don’t worry about the details of my finances right now.”
Full financial transparency is non-negotiable. Ducking questions or withholding documents throws up red flags about what you might be hiding. Your loan officer needs a complete picture, so be open.
Strategies to Maintain a Positive Relationship With Your Lender
Building and maintaining a robust relationship with your lender is akin to tending a garden â it requires consistent care, attention, and an understanding of what helps it thrive. When youre exploring your mortgage options or liaising with a mortgage broker , keeping things transparent with your lender lays the foundation for a mutual trust that can yield significant benefits for both parties.
Communication Is Key. Keep your lender in the loop with any changes to your finances. Its a bit like updating an app on your phone; if you dont do it, youre not operating with the latest, most optimal version.
Regular updates help:
- Foster trust
- Streamline the lending process
- Prevent misunderstandings
Consistency Is Crucial. Ensure youre timely with your documentation and repayments. Imagine it as having a punctual friend â itâs always easier to trust and depend on someone who shows up when they say they will.
A common slip-up is the underestimation of paperwork involved in mortgage applications.
Heres how you can sidestep this obstacle:
- Gather your documents early
- Keep digital and physical copies organized
- Seek guidance from your broker on whats needed
Regarding different techniques, some borrowers opt for automated payments â a “set-and-forget” method that ensures on-time payments without the hassle of monthly reminders. In contrast, others may choose manual payments to keep a closer eye on their finances.
Incorporating these practices effectively means adhering to a few golden rules:
- Dont Change Your Financial Landscape Abruptly. Sudden changes like a new car loan might raise red flags for your lender.
- Stay Honest. If your financial circumstances change, its better to be upfront than to have discrepancies discovered later.
Ultimately, the best route is a proactive one. By demonstrating reliability, transparency, and a willingness to communicate effectively, youll foster a positive dynamic that could benefit you in the long run. Whether its getting advice on how to better manage your loan or securing more favourable terms in the future, a good relationship with your lender is a cornerstone of financial wellbeing.
Navigating the conversation with your lender is crucial for a successful mortgage application. Remember to focus on the positives of your financial situation and avoid discussing potential red flags that could jeopardise your loan approval. Keep communication open and honest and stay on top of any changes in your finances to maintain a strong relationship with your lender. By doing so youll set the stage for a smooth lending process and a brighter financial future.
What Not to Disclose
When youre knee-deep in the mortgage process, navigating the waters of what to share and what not to share with a lender can be, well, murky. Imagine youre holding a hand of cards. You want to disclose enough to keep the game fair but keep your best cards close to your chest. In this case, your “best cards” might include sensitive personal financial details that could potentially be misunderstood or disadvantage you.
One common misstep is revealing that youre considering changing jobs or if you have a job offer in hand with a different employer. Lenders prize stability, so even hinting at uncertainty may raise an eyebrow. Remember, theyre looking for assurances that youll be able to maintain consistent mortgage payments over time.
You might also think that discussing your side hustles or freelance work is a plus, but unless youve been doing it consistently for a couple of years and can prove its a reliable source of income, it may raise more questions than confidence.
- Avoid discussing side income or freelance work unless its long-standing and well-documented.
- Dont divulge information about upcoming job changes or new employment opportunities until theyre firm and you can present them in a positive, stable light.
In terms of your financials, youd be wise to keep any recent large purchases or expenditures under wraps unless asked directly. These might signal to the lender that youre not the safeguarding type when it comes to finances.
Practical tip: review your bank statements and prep explanations for any large, recent transactions. Lenders will scrutinize your spending habits, and youll want to be ready to present those big-ticket items as necessary and well-considered investments, not impulsive buys.
And about those credit cards â if youve just applied for new ones or racked up a balance, keep it to yourself. Those are the jokers in your financial hand that can seriously skew a lenders assessment of your reliability.
- Charge recent big purchases? Dont volunteer this information unless it comes up.
- New credit card applications are best kept quiet, as they can affect your credit score and a lenders decision.
What NOT to tell your LENDER when applying for a MORTGAGE LOAN
FAQ
What is a red flag in a mortgage?
Understanding the Mortgage Application Process
Once the application is submitted, the lender will review the information and conduct a credit check. This is where potential red flags could be raised. Red flags are issues or inconsistencies in the application that could potentially hinder the approval of the loan.
What is the 3 7 3 rule in mortgage?
What looks bad to a mortgage lender?
Avoid applying for or opening new credit card accounts or loans in the six to 12 months leading up to your mortgage application. Don’t close old credit card accounts that are in good standing, since the length of your credit history is a factor in your credit score.
Is lying to a mortgage lender considered mortgage fraud?
Lying to a mortgage lender is considered mortgage fraud. Providing misleading information on a loan application can ruin your chances of approval. Remember, your goal is to get approval and the best rate available. Lenders are required to perform verifications of key financial documents.
What should I look for in a loan application?
When applying for a mortgage loan, it’s important to consider your debt-to-income ratio (DTI). Small charges are fine, but a lender might run a final credit report close to closing, which could change the loan terms or deny the application. A stable employment history is also beneficial if you have control over it.
What is considered mortgage fraud?
Providing misleading information on a loan application is considered mortgage fraud. Lenders are required to perform verifications of key financial documents. If you’re unclear about what to disclose, let your lender know, and they’ll help you overcome those obstacles.
What if my loan application has a hint of fraud?
Also, if they believe your loan application has a hint of fraud in it, they can file a suspicious activity report (SAR), which could trigger a federal investigation. So, be completely transparent and forthcoming on your loan application.
Why is my home loan application rejected?
That’s because, frequently, when borrowers’ home loan applications are denied by lenders, it’s due to a lack of disclosure or transparency by the borrower. This innocent “oversight” may seem harmless to the borrower, but being fuzzy with or fudging the facts is a surefire way to have your loan application approval rejected.
What happens if you mention a side deal to your lender?
If you mention a side deal to your lender, it’s going to raise major red flags. But don’t withhold the info, either—if you do and you’re found out, you could be charged with mortgage fraud, and that’s a felony.