4 Things Would-Be Homebuyers Should Never Say To Lenders
About 8% of mortgage applications were denied in 2020, according to a Nerdwallet study.
Some of these denials were likely avoidable. How so? By homebuyers keeping their mouths shut.
When you apply for a mortgage, anything you say or do could derail your homebuying efforts. Proceed with caution.
This is no license to commit mortgage fraud or try to hide details that could later get you in legal trouble. Be upfront about your situation, just don’t readily provide details about your future, or discuss things that the lender doesn’t need to know.
Here are things you should never say to your lender.
» Expert Tip: Looking to buy soon? Set yourself up for having your offer accepted on a home by getting preapproved for a mortgage prior to your home search.
“I’m Starting My Own Business Soon”
If you have a solid W2 job right now, do not leave it before closing on your mortgage.
Those who start a business now likely won’t qualify for a mortgage for two or three years.
This time frame is required for you to start making money and have two years of filed tax returns to prove your income. Even then, you may not be able to show enough income during your first two years in business to qualify.
Some entrepreneurs may need five or more years to make a steady income.
Keep your cushy employed status intact until after closing. Avoid boasting about your fail-proof startup idea to your lender. Keep your future in the future.
First, being pregnant is none of your lender’s business.
Second, a lender can’t legally deny you because you’re pregnant or even ask the question. That’s a violation of the Equal Credit Opportunity Act.
All that being said, underwriters could deny loans because a borrower said they were about to go on maternity leave, even after a regulatory crack down. In 2014, Wells Fargo was fined $5 million for discriminating against pregnant women.
Still, mentioning pregnancy or maternity leave will open up a Pandora’s box of documentation requirements.
The lender can legally ask for your current income level, your maternity leave income level, proof of a return-to-work date, and other things that could make your life miserable.
The solution: keep quiet. And, let your HR department know that your lender will call requesting verification of employment. Ask them to make no comment on any possible upcoming leave.
If you’re already on maternity leave, your lender will probably find out. But if it’s in the future, mum’s the word.
“Just Six More Months Until Retirement!”
Lenders don’t like it when your verified source of income will end within three years of loan closing. That includes retiring.
This happens more than you might think. People move to a rural area, downsize, or otherwise change home type or location shortly before they retire.
That’s fine. Feel free to do it. Just don’t tell your lender why you’re moving.
If you mention an upcoming retirement, the lender can’t consider your established employment income for the loan. According to Fannie Mae guidelines, “Unless the lender has knowledge to the contrary, if the income does not have a defined expiration date…the lender may conclude that the income is stable, predictable, and likely to continue.”
You could try to prove your future retirement income. But often, adequate documentation isn’t available until you actually retire. Even then, it’s could be difficult to prove income in retirement.
Avoid letting your lender know that there’s an expiration date on your employment income.
“Here Are All My Bank Statements”
You can literally be denied if you simply hand over all your bank statements to your lender willy-nilly.
Your bank statements show a lot about you: non-sufficient-funds (NSF) charges, unexplained bank deposits, mysterious payments to individuals, and more.
Don’t hide valid information such as a private loan that doesn’t show up on your credit report. By law, you must disclose debts.
But do you want the underwriter asking why you had an NSF charge on a checking account you forgot about?
Large, unexplained deposits are even harder to document. Say you lent your friend $1,000 a year ago. He happened to pay you back right before you applied for your mortgage.
The underwriter may need a letter of explanation from your friend on why he’s giving you the money, verifying that it’s not a loan.
Avoid requesting awkward letters from friends. Comb through your bank statements for things that may look odd to an underwriter.
Bottom Line: Have A Need-To-Know Relationship With Your Lender
If you’re unsure what your lender needs to know and what it doesn’t, ask your loan officer. Remember that he or she is in sales and wants your loan to go through.
A good loan officer can act like a filter, removing questionable items before they hit the underwriting process.
The job of underwriters is to protect the lender. They want to discover potential hazards like maternity leave and large bank deposits.
But, in many cases, what they don’t know won’t hurt them.
» Expert Tip: Thinking about buying a home but want to secure a good rate? Find a lender that gives you the power to lock an interest rate for an extended period so you can shop around for a home comfortably knowing that your rate is secure and won't go up. Get started here!
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Tim Lucas spent 11 years in the mortgage industry and now leverages that real-world knowledge to give consumers reliable, actionable advice. Tim has been featured in national publications such as Time, U.S. News, MSN, The Mortgage Reports, My Mortgage Insider, and more.