When you are buying a house and getting a mortgage, lenders want to be confident in your ability to pay for the property.
As a result, during the process of securing your home loan, there are a few key things you don't ever want to say to your mortgage lender as they could raise concerns that could undermine your ability to get a loan.
Here are three things to avoid saying so you don't raise red flags.
1. "The house is in bad shape."
When you get a mortgage, the home is collateral for the loan. As a result, there can't be any major issues with the property. Although the rules can vary slightly depending on lender and type of loan, typically, you won't be able to get a mortgage loan on a property with any of the following issues:
- Mold
- Broken handrails
- Exposed wiring
- Plumbing issues
- HVAC issues
- A roof with less than two years of life
- An unstable foundation
- An active pest infestation
Lenders would generally require anything that could be a health or safety issue to be repaired before you can close. You definitely don't want to indicate to a lender that a home is in bad shape, as this could create questions about whether the home can act as collateral at all.
Of course, even if you don't point these issues out, the appraiser might as it is the appraiser's job to take note of problems that could affect the value of the home. Just be aware that if the house you're buying does have major problems, you may not be able to move forward with borrowing to buy it.
2. "I'm still figuring out where my down payment money is coming from."
Lenders need proof that you have the money for a down payment. Sometimes, a certain amount of this money must be supplied from your own funds rather than coming from a gift or other loan.
If you indicate to a lender that you do not yet have the money for a down payment -- or if you can't provide bank statements showing that you do in fact have the cash -- you're typically not going to be approved for a home loan. To avoid this problem, make sure you can meet the lender's minimum down payment requirements.
Some lenders allow you to borrow with as little as 3% down, so if you're having trouble coming up with the funds, you can consider whether a low down payment loan might be right for you. Putting a small amount does mean your mortgage will be more expensive, though. You may be charged a higher rate, you'll be borrowing more, and you'll likely have to pay for private mortgage insurance (PMI) to protect the lender in case of default.
It can be better to save up a sufficient amount of money to put at least 10%, and ideally 20%, down before you move forward with a home loan.
3. "I sure hope I can afford the payments after I quit my job next year."
Finally, lenders want to ensure that your income is stable. Typically, most require two years of work history in order to give you a loan. If you suggest to your lender that you're soon going to be dramatically reducing the income you have coming in, this could raise concerns of default.
The bottom line: You want to come across as a well-qualified borrower. You should both watch what you say to avoid suggesting you aren't and should take steps like saving a generous down payment to ensure that you are someone a lender will feel confident working with. This will make your mortgage approval process a lot easier in the end.
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FAQs
Questions a mortgage lender should never ask
Sexual orientation. Disabilities. Family expansion plans (a lender can ask how many children you currently have and their ages, but it can't ask if you plan to have more or discriminate based on familial status)
What not to tell a mortgage lender? ›
5 Things You Should Never Say When Getting a Mortgage
- 'I need to get an extra insurance quote due to … ...
- 'I can't believe how much work the house needs before we move in' ...
- 'Please don't tell my spouse what's on my credit report' ...
- 'I'm still working out the details on my down payment'
Questions a mortgage lender should never ask
Sexual orientation. Disabilities. Family expansion plans (a lender can ask how many children you currently have and their ages, but it can't ask if you plan to have more or discriminate based on familial status)
Which is an example of an illegal question to ask at a mortgage application? ›
Mortgage lenders are also legally allowed to ask about an applicant's ethnicity and marital or divorce status. One question a lender may ask is whether you are part of a lawsuit. Lenders are not allowed to ask if you are planning to start a family or ask about the status of your health.
What to say when reaching out to a mortgage lender? ›
Say something along the lines of: “Right now, I am looking at houses in the $250,000 range, but I want to make sure that I qualify to borrow that much money first.” Listen carefully to what they say. Ask questions about anything you are uncertain about or don't know.
What is a red flag in mortgage? ›
Red Flag #1: When they offer you a rate that's lower than the APR. When a mortgage's APR is much higher than the actual rate, it means that the fees are a lot higher, too - and you'll be paying them over the life of your loan. A low rate might be enticing, but you have to consider the long-term cost.
What is the Red Flags rule mortgage? ›
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 are toxic lenders? ›
'Toxic' Lending
The SEC's cases have focused on lenders who obtain a type of convertible debt—or debt that can be exchanged for stock—known as “market adjustable securities” from penny stock companies.
Do mortgage lenders care about your spending? ›
When determining if you are qualified to obtain a mortgage, banks check your credit report which includes your spending habits each and every month. Outstanding debts, excessive spending and having an unappealing debt-to-income ratio are all red flags when it comes to mortgage judgment.
What can an underwriter not ask for? ›
Underwriters Cannot Directly Ask You Anything
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.
According to the Federal Bureau of Investigation (FBI), it is any sort of "material misstatement, misrepresentation, or omission relating to the property or potential mortgage relied on by an underwriter or lender to fund, purchase, or insure a loan."3 With this working definition, we see that mortgage fraud can be ...
What is an unlawful question? ›
You may find an employer asking you an illegal question in an interview. These questions may ask you to reveal your age, race, national origin, citizenship, gender, religion, marital status, sexual orientation, or arrest record.
What are the 5 illegal questions to ask in an interview? ›
We recommend that you avoid asking applicants about personal characteristics that are protected by law, such as race, color, religion, sex, national origin or age.
What is a good sentence for mortgage? ›
Examples of mortgage in a Sentence
Noun He will have to take out a mortgage in order to buy the house. They hope to pay off the mortgage on their home soon. Verb She mortgaged her house in order to buy the restaurant.
What to do before talking to a lender? ›
How do I prepare before meeting with a mortgage lender?
- Strengthen your credit.
- Determine your budget.
- Understand your mortgage options.
- Compare rates.
- Get preapproved.
- Read the fine print.
Be firm, polite and get straight to the point by saying that you would like a home loan interest rate reduction. This is when you can start justifying your request by: Explaining why you're a responsible borrower. Comparing what you're paying as a loyal customer to what new customers pay.
What negatively affects mortgage approval? ›
How does your income affect whether you will get approved for a mortgage? Mortgage lenders consider your income relative to your debt when determining if you will be approved for a home loan. Most conventional lenders do not want your housing costs to exceed 26% of your income or your total debt costs to exceed 36%.
Should I disclose all my bank accounts to mortgage lender? ›
In fact, they'll likely ask for documentation of any accounts that hold monetary assets. This is because mortgage lenders want to know that you'll be able to afford your down payment – if one is required – and make your monthly mortgage payments.
Do mortgage lenders look at your bank account? ›
Generally, yes. You'll almost certainly be required to submit bank statements to be considered for a mortgage loan — at least one to two months' worth.
What is the best mortgage rule? ›
According to the 28/36 rule, you should spend no more than 28% of your gross monthly income on housing and no more than 36% on all debts.
