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4 Common Ways People Commit Mortgage Fraud On A Mortgage Application

Applying for a mortgage is a big deal in the home buying process. If an individual is not accepted for a mortgage, their chances of buying a home are low. To buy a home, a person has to have money. If a buyer does not have a large amount of money, then they must have a mortgage. To have a mortgage, a person has to be accepted for a mortgage. To be accepted for a mortgage, a person has to fill out the mortgage application. The information that a prospective homeowner fills out on the mortgage application determines whether or not he or she will be approved for a mortgage. Therefore, in filling out the application, people want to provide information that is going to help them be approved. However, if the information provided is not accurate to his or her situation, then he or she will have committed mortgage fraud. One way that mortgage fraud occurs is when the information provided on a mortgage application is inaccurate. Four common ways people commit mortgage fraud on a mortgage application are:

 

  1. Lying about who will be living at the home. A homebuyer who plans on using the property as an investment property (i.e. renting the property out) needs to clarify that that is his or her purpose for the property. When applying for a loan, a homebuyer is going to want the best deal possible on the loan. A shorter loan or smaller loan is going to save the homebuyer thousands of dollars. By declaring that the homebuyer is going to be the person living in the home, the homebuyer will receive a lower interest rate and lower down payment than if he or she were to state that the home is an investment property. Investment properties have higher credit rates and higher down payments than regular homes. The differences in loans are due to lenders believing that homebuyers are more at risk of defaulting on their loan if they are not the ones who will be living in the home. Homeowners will be more motivated if they are paying off a loan on a home that is for them to live in. Whether purchasing a home as a residence or as an investment property, a homebuyer needs to be honest about why they are purchasing a home on the mortgage application.
  2. Lying about the income received. A lender is going to be analyzing a prospective homebuyer’s income in order to determine whether or not the individual is able to afford a home. By writing a higher income on the application, a person may feel like they are going to increase their chances of receiving a mortgage. However, trying to deceive a lender with how much money the homebuyer makes is one of the hardest areas to be successful. A lender is going to verify the amount the homebuyer claims as an income with official documentation (his or her tax returns, W-2 forms, credit reports, etc.). Even if a homebuyer were to try to alter the documentation needed, he or she would be caught committing mortgage fraud once the tax return documents were sent in. The IRS, not the applicant, provides the tax return documents. The lender is going to figure out if an applicant is trying to manipulate how much they are actually receiving.
  3. Lying about the employment history. A lender requires the borrower to have worked the same job for at least two years. This proves that the borrower has job stability and financial security. If a person wants to receive a mortgage but has not held a steady job for two years, it is tempting to lie about his or her employment history. Some people opt to lie about how long they have worked at a certain company. Others choose to make up a part time job or small business. However, regardless of how an applicant may choose to provide inaccurate information, the tax returns are still going to cause the applicant to be discovered as having committed mortgage fraud. The tax return is going to provide how much money the applicant has been receiving. If there is no information regarding the applicant having worked at the business for more than two years, of having worked for a small business, or of having a part-time job, then the applicant is going to be in trouble.
  4. Lying about the debt-to-income ratio. Lenders will need information on a homebuyer’s debt-to-income ratio. Taking out a mortgage means increasing the homebuyer’s debt. If a homebuyer already has a large amount of debt and only enough money to be able to cover payments for that debt, he or she is not going to be approved for a mortgage. The homebuyer’s income has to be able to cover the payments that would come with the new debt. An applicant may try to deceive the lender in not providing the lender with all of the information regarding their debt in order to keep their debt-to-income ratio at a level where they would be approved. However, to establish an applicant’s debt-to-income ratio, the lender is going to use the applicant’s credit report. The credit report is made by credit reporting agencies that gather information from banks, insurance companies, medical debt collectors, utility companies, and the list goes on. Each credit reporting agency is going to have a specific list of what information they are gathering. This makes it very difficult for the applicant to be able to deceive the lender in how much debt they currently have.

The consequences of committing any of these mistakes are severe. Being found guilty of mortgage fraud can lead to prison time and a large fine. A small white lie in everyday life may not seem like a big deal. But attempting to lie when applying for a mortgage is a very big deal. When applying for a mortgage, be sure to provide completely accurate information. You will not want to make a mistake.

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