Here we’ve touched on some of the things borrowers might think it’s okay to lie about during their mortgage application, and why it’s not worth risking your chance to finally buy a home.
If you’ve received help from your parents or any family member for your house deposit, whether it was a gift fund or you borrowed it and plan to pay it back, don’t ever think it’s harmless to declare it as part of your genuine savings. You will have to disclose the source of your down payment to avoid the risk of being questioned, or worse, being denied on your loan.
For down payment gift funds that don’t need to be repaid, lenders may ask for a letter signed by that person, saying that the money doesn’t need to be paid back. But if you’re short on cash and the fund is a loan, lenders will want to know about it because it’s part of your other financial obligations, even if it’s a personal agreement between you and your family member or friend.
The problem with this, though, is that if you have an investment property, you need an investment home loan instead of an owner-occupied home loan, which comes with lower interest rates and fees. Lenders deem investment properties to be higher risk than residential, as people will usually work harder to repay the mortgage if their own home is at risk. Minimum down payments are also significantly bigger on rental properties.
From the lender’s point of view, you’re stealing money from them by making them take on more risk than they agreed to. So spill the beans on who will be living on the property, as it could amount to occupancy fraud which has serious consequences.
Lenders will easily find out because, during the application process, they will request various proof of income documents, including a couple of recent paycheck stubs or tax returns. If something doesn’t add up, be prepared to have to explain. You might still be able to go ahead with your application if you’ve simply made a genuine mistake. But if they’ve found out you’ve downright lied, expect your application to be declined.
If you’re already under contract, your earnest money deposit could be forfeited.
If the truth comes to light after the deal is done, the lender could decide to call the loan payable. This means you have to pay the full amount of the mortgage, or face foreclosure.
The lender could increase your rate as a penalty, leading to higher interest and monthly mortgage payments.
Worst case scenario: you’ll be charged with mortgage fraud, with a penalty that can include a maximum of 30 years prison time and a $1 million fine.
The biggest lesson: Just be honest from the start so you’ll have a better chance of getting approved for a mortgage.
