Is It Fraud To Lie On Your Loan Application?
To get your loan application approved from a lender of your choice, there are a number of boxes you need to check.
You must have an adequate initial deposit for your property, a stable income history, a good credit history and a good debt-to-income ratio, among many other requirements.
The dream of owning a house in Australia might seem difficult to achieve without a mortgage, but not everyone is able to fulfil lenders’ criteria for a loan approval.
The loan application is the first step in the home-buying process. Many people tend to be tempted to upgrade their current financial status or show improved repayment capacity, by overstating their income, forging a false employment status, hiding existing debts or showing lower living costs than they truly have.
The number of applicants filling in inaccurate data on forms is ample. What loan liars – as they are known – are missing is that not only are they hurting their chances of getting approved, they are also putting their financial futures at risk.
Lying about one’s circumstances on a mortgage application is considered mortgage fraud, and has varying consequences in different countries.
What Are The Most Common Lies On Loan Applications?
According to the credit reporting company Experian’s research based on 1000 borrowers, a quarter of home loan applications could hold inaccurate information. Fueled by the fear of not getting home loan approval, the borrowers resorted to the following:
Applicants tend to overstate their income or salary to qualify for a higher loan than they can afford or to get a loan approved at a better rate. Some borrowers assume lenders won’t verify their income.
Understating Living Costs
Applicants also tend to understate their living costs intentionally because they know their loan might get declined if their expenses are too high. They often hide non-essential expenses such as gym memberships, takeaway dinners and vacations.
Lenders cross-check the income and expenses of applicants to determine what size repayments borrowers will be able to make without struggling.
Existing debt can make a huge impact on your chances of getting a home loan approval. Lenders take this information into careful consideration before deciding whether or not borrowers can carry the burden of an additional loan and make monthly repayments without fail.
Even so, some applicants resort to hiding their existing debts, despite knowing that an additional loan will probably result in mortgage defaults in the future.
As wonderful as a pregnancy is for new parents, it comes with the additional responsibility of providing for a newborn. Childcare costs can increase the expenditure of a household above what loan applicants can afford, which can reflect negatively on the applicants’ ability to make mortgage repayments consistently.
Lenders consider a child an additional dependant, which can add about $2500 to the household expenditure a month.
Upcoming Job Change
Many applicants say they lie about the number of jobs they work in order to depict a better financial situation. But others are guilty of hiding an upcoming job change.
Changing jobs can affect the lender’s view of the applicant’s income stability and repayment capacity, especially if you have unusual employment.
How Do Lenders Catch Liars On Applications?
While the submission of false information on applications has not caused any harm to the Australian economy yet, the rapidly growing number of loan liars could cause concern in the future.
Lenders and financial institutions have precautionary measures in place to sift out underqualified borrowers. They rely on credit reports such as Equifax, Illion and Experian to find the public records and financial history of applicants.
They also share the information they collect with other lenders so they can cross-check the consistency and accuracy. In addition, many have technological software and programs that detect inaccuracies in documents and flag them, bringing them to the attention of other lenders.
To reduce the fast-growing number of applicants who lie on their applications, systems such as open-banking and comprehensive credit reporting have been brought into effect as of 1 July 2021.
What Are The Consequences Of Lying On A Mortgage Application?
The most likely penalties for lying on a mortgage application are:
- Rejection of the application.
- A mark on the credit score of the applicant.
Borrowers who resort to lying on their mortgage applications may not suffer immediate consequences or face charges but that does not mean they won’t run into trouble later. Here are a few severe hardships that applicants caught lying on the application might have to face:
A Pulled-Back Loan
If repayments are missed, there is an extensive investigation of the application and the lenders have the right to pull back the loan if they find any information to be misleading. This means that the applicant will receive an ultimatum to pay off the entire loan within 30 days, most likely resulting in a forced sale of the property.
Landing on lenders’ Blacklist
Most lenders in Australia share their data to keep fraudsters out. If one lender rejects an application for false statements, all the other lenders can cross-check the data and reject that applicant.
This means the applicant will be unable to secure finances from any lenders, putting an end to any dreams of homeownership.
Refinancing becomes difficult
Another risk for loan liars is refinancing troubles. Chances are high that any new lenders will suspect the application, check with the previous lender and not agree to extend a new loan.
Any mortgage defaults are reflected on the applicant’s credit score, which is one of the main documents lenders consider when approving a new or refinanced loan.
With the comprehensive credit reporting system in place, deviation from the scheduled mortgage payments will be reflected in a borrower’s credit scores on a monthly basis, making it harder for applicants to hide any issues.
Bottom line: lying on your loan application isn’t the answer.
Why Is A Mortgage Broker A Better Way To Go?
Most applicants are tempted to lie on their mortgage application because they assume their financial status makes them ineligible for the loan. They assume conditions such as bad credit, unusual employment, existing debts and having low-doc employment and income can lower the lender’s perception of their repayment ability.
While it is true that applicants with conditions like these might have a longer and more difficult time getting their loans approved, that does not mean they will not be able to get a loan.
Lenders have varying standards for deciding who qualifies for a loan and who doesn’t. Even if one lender rejects an application, there are plenty others who will gladly accept the same application.
It is just a matter of matching with the right lender and providing the required documentation. This is exactly what our expert mortgage brokers at Home Loan Experts are here for.
Call us at 1300 889 743 or fill out our free enquiry form so we can help you get your hands on your dream home, the right way.