Estimated reading time: 4 mins
Are you thinking about buying a home? Or re-mortgaging your existing home? It’s very tempting to over-state your income to get what you need. Here’s why you shouldn’t!
I was tempted myself, once, when I needed an extra $50k to get the home I really wanted. It was everything I wanted in a new pad, and much more. Gardens front and rear, a double-garage with rollover doors, more bedrooms than I could fill. A kitchen with the full works. I had already begun to move into the place, in my head. That lie… that little lie… a small one when I thought about the prize.
WRONG. I’m glad I didn’t. There are 17 reasons why.
- It’s fraud, after all. You could land yourself in serious deep water, be black-listed by lenders, etc. Do you want to be tarnished with this brush?
- It’s lying too. Bad karma. Not good for the soul.
- It’s a crude way to get what you want. There are better ways that a mortgage broker can help you with, using good practice and industry knowledge.
- The sub-prime crisis has meant that lenders are more scrupulous! You won’t see the likes of Fannie Mae and Freddie Mac for a while- at least business who have a sustainable business model.
- It’s partly the reason why our economy is in the deteriorating state it is in! If fewer people took on mortgages they couldn’t afford, who knows where we would be?
- Why take on a mortgage that you can’t afford? It’s a world of misery. Think about the sleepless nights; the neck and shoulder-pain caused by stress; that sour feeling of everyday life. No new home is worth all that.
- Even if you can manage to scrape together the repayments – it will mean a drop in your standard of living. (If things weren’t bad enough already?)
- What if you foreclose? You’d lose pretty much everything but your shirt. Between 2004-2008, 6.4% of mortgages foreclosed. That’s 2.7million loans! 2.7million families without a roof over their head.
Am I making sense, yet?
Are these good enough reasons for you not to bump up your income a notch or two? If not, here are some more!
- Mortgage lenders now claim to be ‘responsible lenders’ and many are being measured against this.
- If your application is rejected, then chances are, all subsequent applications will. Don’t think that news doesn’t travel fast.
- Mortgage underwriters that review your application are not stupid – they’ve seen it before. They know what to look for. They can spot it a mile away!
- Mortgage lenders expect some people to lie. It’s the nature of the beast. It’s a statistical fact that the industry takes as given.
- Mortgage lenders use statistics about your job, location, etc to know what is a typical income for your demographic. They’ll inspect ‘outliers’ closely as your application will be lit up like a Christmas tree.
- Mortgage lenders are skilled at spotting inconsistencies in your personal finances. Why would you be claiming a $150,000 income if you’ve slammed your credit cards for all they’re worth, and paying off only the minimum payments? Go figure!
- Most mortgage lenders have complex computer models that detect income discrepancies. Mortgage lenders invest millions into these systems, because they limit their risk. Mortgage lenders will always try to limit their risk and exposure to default (especially now).
- Mortgage lenders can withdraw your approved finance right up to the point you’re ready to get the keys, which will mean you’ll have spent more money on preparing for the move,
- And even worse, if you have given up your job to take on work in a different city. This would be the worst (the very worse) situation of all. Then what would you do?
You should also take a look at the website for the Centre For Responsible Lending to learn about the scale of the mortgage market and the challenges it faces – which will go a long way to explain why the 17 points I make above are critical factors of why you should be 100% truthful about your income when applying for a mortgage. Or any other loan for that matter.
Just look at some of these statistics I found on the the Centre For Responsible Lending website. See what you think!
I don’t know about you, but I can’t help but feel alarmed about these statistics. What’s more, these stats are only for 2004-2008. What about now, with the financial crisis as it is? It’s unlikely to be any better now than it was between these years.
The best thing to do is, rather than lie, seek a qualified mortgage broker whose objective is to get you a deal (so they can get their commission). Their commission is a small price to pay for the sound advice that they provide. They’re professionals, they have to data and the tools, and they know your predicament. And after all, they’re on your side!
Have You Suffered Foreclosure?
What would YOU say to people who are considering taking on a mortgage they can’t afford? What’s your story? Share your experience by leaving a comment below.