Be careful about what you share with a mortgage lender because it may get your loan application denied.
A mortgage loan application process involves a full examination of your financial background. While there may be a lot of questions and documents to complete, staying honest and knowing what to say to your lender can help you close the deal. Remember, your goal is to get approval and the best rate available.
Here are a list of 10 things you should not say to your lender:
1) Anything untruthful
Lying to a mortgage lender can ruin your chances of approval. On top of that, providing misleading info on a loan application is considered mortgage fraud. Some try to hide certain info, but 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.
2) What's the most I can borrow?
“So, what’s the maximum amount I can borrow?” Please don’t ask this question. That shows most lenders that you haven’t done your homework and sound uninformed. According to the 28/36 Rule, a household should spend a maximum of 28% of its gross monthly income on total housing expenses and no more than 36% on total debt service.
For example, if you make $5,000 per month, you should spend no more than $1,400 on housing expenses. Housing expenses consist of your mortgage payments, property taxes, HOA fees, maintenance and repairs, and utilities.
3) I forgot to pay that bill again
Insert cringe here. Like most things in life, consistency is the key. If you mention that a few bills slip your mind here and there, it may create some concern. Even if you don’t say anything, those bills will show up on your credit report. This is a fast-track to getting your loan denied.
4) Check out my new credit cards
We get it, you want to buy things for your new home. The bad part is you’re adding extra debt to do it. Telling your lender you’ve opened up or applied for several new credit cards may not go over so well. Wait until after you finish buying the home to make those big purchases. You don’t want to come off as reckless with your spending before getting approval.
5) Which credit card ISN'T maxed out?
Your lender doesn’t want to see significant increases in the majority of your credit balances. Be mindful of your debt-to-income ratio (DTI). Small charges are fine, but it’s not unusual for a lender to run a final credit report days or hours before closing. That second look can change the terms of your loan or deny your application.
6) Changing jobs annually is my specialty
Some of this you can’t control, but if you can, it’s best to show a stable employment history. At least two years is a common requirement for mortgage lending approval. Lenders count on you to reserve part of your income for loan payments. Showing frequent job changes might not get your loan approved and cause concerns about your ability to meet monthly mortgage payments.
7) This salary job isn't for me, I'm going to commission-based
Kudos for taking the gamble on yourself, but a lender may not. Again, current employment status is crucial to the loan approval process. Whether you are a W-2 employee or seeking a self-employed mortgage, a documented job history (without major gaps) will help you successfully qualify for the loan. If you tell the lender that you’re considering leaving your stable salaried job for a commission-based gig, the deal might be off.
8) I'm getting a cash gift from my parents for the downpayment
That’s great! Keep in mind many lenders allow cash gifts for certain qualifying loan programs. Specific rules exist, so before mom and dad write you a check, speak with your lender about the right way to go about it. Your loan application may get rejected because of an overlooked rule.
9) So foreclosure, how's that work?
That’s a major red flag. Asking your lender what happens during the foreclosure process may indicate that they should think twice. Though it may seem like a harmless curiosity, this may tell the lender that you may have issues paying the monthly loan amount. During the beginning of the process, keep that question to yourself.
10) What is a credit score?
Add this to your financial routine: monitor your credit score. If you don’t know what a credit score is, chances are you’re not ready for a loan. Knowing your score and the factors that make it up is the key to success. To increase your approval chances and obtain a competitive rate, work on improving your credit profile before you apply.