Though mortgage rates are phenomenally low right now, the standard qualifications for mortgages have become more strict. There are many more things that set off red flags with lenders since the COVID pandemic began. When applying for a mortgage loan you want to give the best honest and clear answers that you can, but there are some things you will want to avoid saying in your application process.
Here are some crazy things loan applicants say that can deter a lender from approving a loan.
“I need to get an insurance quote because of _____________”
Asking questions about obtaining extra insurance coverage on your home or stating that it will need some to a lender indicates the home is in a high risk zone and this will shift the type of loan offering by making adding a higher risk of default. Unless it is mandatory for your home to carry flood insurance, it is not necessary to mention insurance needs (other than mortgage insurance) in the loan process.
“ This house is going to take so much work before we can move in”
Leave information about the inspection to the real estate agent. If something needs to be communicated to the lender they will let you know. Other than that, it is the responsibility of the lender to obtain a copy of the report and look it over if needed. Appraisal comments create enough challenges of their own. You do not want to create unnecessary concern that may cause more hoops to jump through.
“Can We Keep My Credit Report Secret from My Spouse?”
This tells a lender that there is a big chance you are not as responsible as they would like you to be with your finances. They also begin to wonder what else you may be trying to hide from them if you are hiding major information from your spouse. It is good to make sure both spouses are well aware of the total financial situation of both applicants.
“ I’m/We’re Still Working Out Putting the Down Payment Together”
A healthy down payment is an important part of applying for a home loan. Lenders like to see that the borrower is investing a good amount of their hard-earned money in the property. This tells a lender the borrower is responsible and serious about this purchase. Any borrowed funds or higher loan to value ratios are acceptable but seen as a higher risk. Down payment fraud is the second-highest type of fraud when it comes to lending and seen as a huge risk.
Lenders will want a paper trail for gifted down payment funds to prove it is really a gift and not money being lent. There are also requirements of who can gift you money for a down payment. It is best to be upfront and honest and go through the right channels about getting help with your down payment.
*It is best to have enough for your down payment months before you apply for a mortgage loan.
“ I am so excited to use ____(big purchase item)_____ we are purchasing from the home owner on the side”
If you have negotiated to purchase something outside of the buyer’s agreement contract from the seller, this spells trouble. There is a statement in your mortgage closing that you sign stating you will not be exchanging any money with the homeowner outside of the purchase contract. If you set up a purchase on the side from the seller this is mortgage fraud. It is best to just include everything in the purchase within the purchase agreement contract and stick to playing by the rules (law).
You should never go into a loan application process with the intent to hide anything from a lender, and should always be truthful and honest with the questions asked of you. Just make sure you don’t overshare, because sometimes this can make a lender more nervous than they should be to loan you money. Especially in a time when lenders are looking to drastically lower the risk of lending money.
For more information on your mortgage options in Mission Viejo and surrounding areas please contact me any time.