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
10 Things Not To Say To Your Mortgage Broker | Loan Approval
- 1) Anything untruthful.
- 2) What's the most I can borrow?
- 3) I forgot to pay that bill again.
- 4) Check out my new credit cards.
- 5) Which credit card ISN'T maxed out?
- 6) Changing jobs annually is my specialty.
The Three C's
After the above documents (and possibly a few others) are gathered, an underwriter gets down to business. They evaluate credit and payment history, income and assets available for a down payment and categorize their findings as the Three C's: Capacity, Credit and Collateral.
What questions is a lender not allowed to ask? ›
In addition, although a lender can gather factual information about some things (your gender and marital status), under the Fair Housing Act and the Equal Credit Opportunity Act, it can't discriminate based on race, religion, color, age, marital status, sex or national origin.
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 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. Housing costs can include: Your monthly mortgage payment. Homeowners Insurance.
What credit score do loan officers look at? ›
Mortgage lenders typically use FICO® Scores☉ from each credit bureau to help determine your loan eligibility and terms. Many mortgage lenders sell the mortgages they issue to the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac.
Which is a way that a mortgage lender can trick you into getting a bad loan? ›
One of the most potent tools used by predatory lenders to keep borrowers defenseless is the prepayment penalty.
What not to say when getting a loan? ›
Terms may apply to offers listed on this page.
- You don't want to tell the mortgage lender that the house is in disrepair.
- You also don't want to suggest you don't know where your down payment money is coming from.
- Finally, don't give your lender reason to worry if your income will stay stable.
3-30-10 Rule For Buying A House
If you really want to keep your personal finances easy to manage don't buy a house for more than three times(3X) your income. If your household income is $120,000 then you shouldn't be buying a house for more than a $360,000 list price. This is the price cap, not the starting point.
What is a 3 3 mortgage? ›
Details. Interest rate will remain the same for the initial term of the loan (3 years), then is subject to change every 3 years. Requires Escrow.
The factors that determine your credit score are called The Three C's of Credit – Character, Capital and Capacity.
What are toxic lenders? ›
Essentially, the lender continues to make money as he converts the debt into common shares — even if the stock is plunging and eventually falls to zero. Toxic financing can come in the form of convertible debt or convertible preferred stock.
What to watch out for when getting a mortgage? ›
Tips on Getting a Mortgage
- Check your credit report. ...
- Fix any credit issues. ...
- Improve your credit score. ...
- Reduce your debt-to-income ratio before applying. ...
- Submit a substantial down payment. ...
- Don't make major life changes or expensive purchases on credit.
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.
Get Your Finances in Order
As for your credit score, review it and make sure there are no discrepancies that could impact the mortgage process negatively. If there are errors, have these fixed before applying for a mortgage. Lastly, don't make any major financial changes or purchases during the loan process.
Should I disclose all my bank accounts to mortgage lender? ›
Do I have to disclose all bank accounts to a mortgage lender? If a bank account has funds you'll use to help you qualify for a mortgage, you must disclose it to your lender. That includes any account with savings or regular cash flow which will help you cover your monthly mortgage payments.
What will not get you approved for a mortgage? ›
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.
What voids a mortgage? ›
§ 506(d). This provision allows a bankruptcy court to void a lien if the lien secures a claim that is not “allowed.” Because the mortgage was “disallowed” by default due to the mortgage servicer's failure to respond, this statute theoretically allows the court to void the mortgage altogether.
