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.
Find your lowest mortgage rate. Start hereHere 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.
Check your home buying eligibility. Start here5) 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.
Find your lowest mortgage rate. Start here8) I'm gettinga 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.
Time to make a move? Let us find the right mortgage for you
FAQs
Under the Red Flags Rules, financial institutions and creditors must develop a written program that identifies and detects the relevant warning signs – or “red flags” – of identity theft.
What negatively affects mortgage approval? ›
Don't make major life changes or expensive purchases on credit. When applying for a new mortgage, don't make significant changes to your financial situation, like switching jobs or making large purchases on credit. Doing so could negatively impact your credit and, by extension, your mortgage application.
What not to do during mortgage underwriting? ›
Any major financial changes and spending can cause problems during the underwriting process. New lines of credit or loans can interrupt this process. Also, avoid making any purchases that may decrease your assets. Once you close on your mortgage, you can move ahead with any planned purchases.
Is it best to talk to mortgage broker or bank? ›
a Bank. A mortgage broker can offer a wider array of options and streamline the mortgage process, but working directly with a bank gives you more control and costs less. Kate Wood joined NerdWallet in 2019 as a writer on the homes and mortgages team.
What to do before speaking to a mortgage broker? ›
When you first meet with your broker or advisor, it's best to bring bank statements from the previous six months as well as payslips from the previous three months, and proof of a deposit.
What is the 43 mortgage rule? ›
As a general guideline, 43% is the highest DTI ratio a borrower can have and still get qualified for a mortgage. Ideally, lenders prefer a debt-to-income ratio lower than 36%, with no more than 28%–35% of that debt going toward servicing a mortgage. 1 The maximum DTI ratio varies from lender to lender.
What is the 33 mortgage rule? ›
Lenders call this the “front-end” ratio. In other words, if your monthly gross income is $10,000 or $120,000 annually, your mortgage payment should be $2,800 or less. Lenders usually require housing expenses plus long-term debt to less than or equal to 33% or 36% of monthly gross income.
What is the golden rule of mortgage? ›
The 28% / 36% Rule
To use this calculation to figure out how much you can afford to spend, multiply your gross monthly income by 0.28. For example, if your gross monthly income is $8,000, you should spend no more than $2,240 on a monthly mortgage payment.
Do mortgage lenders look at your spending habits? ›
Spending habits
Lenders will usually closely examine your bank and credit statements for a period of up to six months to get an insight into your spending habits and to ensure you aren't exceeding your limits or making late payments.
Can a mortgage be denied after approval? ›
Mortgages can get denied and real estate deals can fall apart — even after the buyer is pre-approved. If you're aware of the pitfalls, you'll reduce the chance it can happen to you!
Explanation of Denial: The letter will clearly state that the mortgage application has been denied and explain the specific reasons for the denial. Common reasons can include credit issues, insufficient income, high debt-to-income ratio, employment history concerns, or issues related to the property itself.
Do underwriters watch your bank account? ›
Your recent bank statements show if you can afford the down payment and closing costs, as well as monthly mortgage payments. As they are essential to this, your lenders check bank statements, deposits, and withdrawals for red flags — particularly negative balances resulting from overdrafts or non-sufficient funds fees.
What are the three C's of mortgage underwriting? ›
These three essential factors — Credit, Capacity, and Collateral — play a pivotal role in determining your eligibility and terms for a mortgage. Let's delve into each of these C's to unravel the secrets to a successful mortgage application.
Why can't you talk to an underwriter? ›
Underwriters Cannot Directly Ask You Anything
It is important to note that underwriters should not be in actual contact with you. All questions and discussions should be handled through your lender or loan officer. An underwriter talking to you directly, or even knowing you personally, is a conflict of interest.
Is it worth talking to a mortgage broker? ›
Not only can a broker suggest a range of products based on your situation, it enables you to compare several options, rather than simply going with a provider you already bank with. If home buyers are short on time and can't research home loans themselves, a mortgage broker can do some of that work for them.
What to know when talking to a mortgage broker? ›
Make sure you ask your mortgage lender – or broker – plenty of questions about income requirements, the types of loans you qualify for and how much you have to save for a down payment and closing costs. Do you have questions or need help finding the right loan for you?
What happens when you speak to a mortgage broker? ›
They'll check your finances to make sure you are likely to meet the individual lender's lending and affordability criteria. They might have exclusive deals with lenders, not otherwise available. They often help you complete the paperwork, so your application should be dealt with faster.
