Lying about Your Income to Secure a Mortgage Loan

A Home Buying Article Contributed by Robert Scalia

Taking the Morale High Road When It Comes to Taking out a Mortgage Loan

No one wants to have to lie to get a mortgage loan.

But what of you happen to be a self-employed professional with a low income? You might not be very attractive to a lender or other financial institution that is offering a mortgage loan, but you do have substantial assets and your credit history is perfect.

You might believe you're a perfect candidate for something like a no-ratio mortgage loan and so you go see your mortgage broker. Then he tells you that you can get a lower interest rate with a "stated income" loan. But it will require you to make up a fictitious income amount on the application - one that was in fact large enough to meet the lender's demands.

Perhaps you are heartened by the fact that the lender will probably never follow up on your income. And the fact of the matter is that the mortgage broker is probably right. But you still have a dilemma on your hands, don't you?

But is Lying Really the Best Policy When It Comes to Your Mortgage Loan.

There are a couple of things you need to know about your mortgage loan that even your broker might not want to tell you.

The amount of risk associated with lying on your mortgage loan application depends on the likelihood of being caught It's true that mis-stating your income is probably something you can get away with. But keep in mind that the broker is not worried about the risk because he is only entering the number you provide him. So it's not really his neck that is the one on the line here.

A stated income loan is designed mainly for self-employed people like yourself who often have difficulty documenting their income. What happens is that the lender will qualify you on the basis of the income you put down on the application.

Given that the lender will simply take your word on it and assume you have the income you say you have, the price of a stated income mortgage loan will consequently be lower than that of a no-ratio loan. Remember that on a no-ratio loan, the lender will also qualify you without taking your income into consideration.

What are the Risks of Lying When It Comes to a Mortgage Loan

When it comes to a mortgage loan, the risk of declaring a false income on a stated income loan is simple. At closing, that same lender might require that you to sign a paper authorizing that person or financial institution to get their hands on your last two tax returns from IRS.

In fact, most lenders will spot-check about 10% of all loans as part of their own quality control process. If you happen to be one of those selected for the spot check and a discrepancy is found in the numbers, you are in a lot of hot water. The lender can demand the immediate repayment of the loan or even file for legal action.

Your broker might be confident in your chances, but it's a risk you will have to take.