While the majority of people are honest on their home loan applications, some people lie – whether intentionally or inadvertently – during the application process. However, if you are caught lying on your application there are a number of potential consequences. This can include having your home loan rejected, ending up on a black list, the bank recalling your loan or even you being charged with fraud.
This means borrowers need to provide precise details about their incomings and outgoings, from streaming subscriptions to gym memberships to other loans and credit facilities.
So let’s take a look at some of the things people lie about, how lies may be uncovered and what could happen if your mortgage broker or lender discovers the truth.
What are some of the most common lies people make on applications?
As a mortgage broker, most of the ‘lies’ that I see on applications aren’t a deliberate deception. The most common falsehoods occur simply because people don’t know their income, or don’t actually know how much they’re spending month to month. We also often find that quite a few applicants have old credit cards that they don’t use. So, they don’t declare them. But because they’re still active, they need to be included in the application.
Another area that can catch people out is not fully understanding what a credit facility is. For example, an interest-free department store card that comes with an attached credit card is considered a credit facility. Even if you threw away the card years ago.
Salary, income and expenses
A lot of people quote their annual salary package, which includes their KiwiSaver and/or benefits, instead of stating only their net take-home pay. This can sometimes be an honest mistake. As that’s how their annual salary was presented to them, so that’s the figure that’s in a person’s mind. As you can’t pay off a loan with KiwiSaver contributions or a car allowance, applicants can’t include these as part of their income figures.
Some applicants also assume that all income is the same. But you can’t use a temporary allowance to pay off a 30-year loan. So a temporary allowance can’t be included in income figures. Rounding up commissions or bonuses are also often lied about on home loan applications. But, more often than not, the intention hasn’t been to deceive.
As mortgage brokers, we stress the importance of people tracking their expenses and knowing their budgets. As there are always black holes, where people forget where their money goes. For example, I had a client tell me his only living expenses were insurance and registration for his car. He hadn’t included, and had forgot, about fuel and running costs. Again, this isn’t a deliberate lie. Some expenses aren’t top of mind. These can include medical expenses, gym memberships and entertainment. But they all need to be included.
The true deception is when people deliberately lie on a home loan application. They could lie about a spouse, overstate their income, claim false residency status, or omit a loan or a credit card. Or even omit children/dependants, so they don’t have to declare the expenses associated with them.
Also, applicants declaring they have a perfect repayment history is another true deception. Especially when overdue payments or credit defaults are discovered. The very worst cases of home loan deception include fraudulent identification documents, doctored bank statements or income documents.
How mortgage brokers and lenders can find out if you’re lying
Mortgage brokers and lenders vet and cross-check everything. One of the reasons for this is because if a loan defaults, the first thing the lender investigates is the loan application and who approved it. They want to know why the loan has defaulted and if the rules were followed.
Mortgage brokers and lenders review the submitted statements, look for glaring anomalies and run a credit check. Now that comprehensive credit reporting is available, every credit limit and facility is reported – including whether or not applicants pay on time. Bank credits to pay slips are matched, business numbers are checked, anomalies in bank statements are looked for and even the tax amount on pay slips is checked.
What happens if you’re found out during the application process?
If an innocent mistake has been made, the lender will ask an applicant why the correct information wasn’t disclosed. If the mistake means an applicant can no longer afford the loan, then they may need to make changes for the loan to be approved. For example, let’s say someone forgot to mention a credit card. The lender may require them to pay off the credit card and close the account prior to the loan being approved.
If the mistake is less innocent, the loan will most certainly be declined. There’s also potential that the lender, and mortgage insurer if there is one involved, may never consider you again. Applicants can also be put on a blacklist and receive a potential black mark on their credit score. In severe cases, applicants could be charged with fraud.
What happens if you’re found out after you already have the loan?
The fallout of lying on a home loan application can vary depending on whether it occurs before or after settlement. Before settlement, the lender can rescind the loan approval, which can have great consequences when there is a purchase or settlement involved.
If the lie is discovered after settlement, the lender can recall or pull back the loan, meaning the borrower would have to pay out the entire loan within 30 days, resulting in a forced sale of the property.
Why it’s important to be truthful on a loan application
It’s important to be honest on home loan applications for two key reasons. Firstly, there’s the criminal side. And, like any fraud the penalties can be high, which would mainly relate to doctored documents.
Secondly, there’s the financial side. Applying for a home loan is a rigorous process for a reason. If a person really can’t afford the loan their mental health, assets and credit history can all be at risk in the long term if they find themselves in mortgage stress.
About the reviewer of this page
This report was reviewed by Canstar Content Producer, Caitlin Bingham. Caitlin is an experienced writer whose passion for creativity led her to study communication and journalism. She began her career freelancing as a content writer, before joining the Canstar team.