Saturday, June 13, 2015

Lies on the Loan Application can backfire

Some borrowers seems to think, that they are smarter than the lenders. They should be very careful, because the lenders have learnt from their losses during the last finance crisis. They are much more vigilant when it comes to mortgage applications and look for facts that are not logical like a very long commute between their potential new home and their workplace.

When a borrower is in the purchase process and applies for a mortgage he/she has to provide evidence of income payments. Such evidence are paychecks from the employer. With this information the lender has a lead, whether the borrower is truthful or not. It is very unlikely to buy a property far away from the workplace and claim that the property is a primary residence only to get a better interest rate and lower down payment requirements.

The difference in the down payment amount is significant, when a primary residence is purchased. The lowest down payment for a primary residence is 3 % of the purchase price and for a non-primary residence the down payment is at least 15 %.

Let's make an example: when the purchase price of a home is $100,000, the difference in the down payment amount is $12,000. The lower down payment on a home rises also the risk for the lender, because borrower that want a mortgage for a non-primary residence are more likely to sneak out of their repayment obligation than primary residence owners. The banks do not want to assume that higher risk and try to protect the loans better.

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