Never Overstate Your Income On A Loan App

Never say you make more than you really do on your loan application. It’s:

• Stupid
• Criminal
• And Stupid

For a short time, you have more money. But then you spend it. Now you have to pay it back. Your lender assumes you make more money than you really do and oh look, they expect you to pay more than you can. Says consumer lawyer Sam Glover:

    “We see a lot of this. Someone comes in for a consultation who is in trouble financially. They can’t afford mortgage payments, and so they come to see me with a story about how their mortgage broker predatorily convinced them to get the mortgage loan. As evidence, they point to their vastly overstated income on the loan application. When they do this, we point to their signature at the end of the loan application.”

Instead, Sam advises buying a cheaper house, or continuing renting until you can afford one legitimately. — BEN POPKEN

Resolution #3: don’t overstate your income on a loan application [Caveat Emptor]

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  1. kerry says:

    When the boyfriend and I decided to buy a place we figured it would be easier for him to apply for the mortgage in his name alone. He applied for the mortgage, was approved for the mortgage, everything was smooth sailing until we went to the closing and discovered that the mortgage broker had mis-stated boyfriend’s income on the paperwork. After some back and forth with our lawyer it became apparent that, while boyfriend had filled out the original form with the correct value, the broker had changed it to about 20% higher to push the mortgage approval through faster. Shady dealings people, shady dealings.
    Lawyer said as long as the form boyfriend filled out has the right number he’s not on the hook for any wrongdoing. If we’d pushed for the broker’s forms to be corrected we would have had to get the mortgage re-approved and have the closing on a different day, which would have been trouble for everyone.
    The happy ending to the story is that boyfriend got a 25% raise about a month later. Ha!

  2. thrillhouse says:

    This is what that Uzbek kid did out in California to land himself $2.4M in debt with little or no income.

    At the same rate, loan officers at car dealerships are notorious for doing this, sometimes with out the buyers knowledge.

    And when you talk about buying a house that you can legitemately afford – thats around 1/4 of your take-home pay.

  3. some_yahoo says:

    Let’s not forget that Congress is pushing to have loan companies report “stated income” to the IRS. So if you think you are getting away with something, prepare to get audited.

  4. billhelm says:

    Typically, in order to do stated asset/ stated income on a mortgage (at most reputable places), you have to have a high enough credit score such that you probably aren’t a high default risk. Otherwise, they require proof of income (w2′s, bank statements, etc).

    Home Equity loans don’t always have the same requirements. Neither do sub-prime loans from shady lenders…

    sadly, the borrower still needs to make sure they can afford the loan. the old adage don’t buy stuff you can’t afford applies…

  5. Grrrrrrr, now with two buns made of bacon. says:

    I had a Primerica agent that wanted me to overstate my assets and lie to the bank. I told him to go take a long walk off a short pier.

  6. segfault, registered cat offender says:

    The “Uzbek kid” thrillhouse is referring to can be found at:

    http://iamfacingforeclosure.com/

    It’s like watching a train wreck…

  7. planetdaddy says:

    As much paperwork and income varification I had to submit for my home loan I don’t see how it would have been possible to overstate the size of my shoes and get away with it.

    They wanted:

    Years worth of paystubs
    Tax paperwork for four years
    401k retirement statements

    They monitored my checking and savings account while the house was being built and any unusual deposits had to be explained. My inlaws gave us a few thousand to go toward our downpayment and I had to get a letter from them explaining that they gave me the money.

  8. thrillhouse says:

    WOW – planetdaddy apparently banks with NaziBank. Seriously tho, its good to hear that some bank out there actually takes this process seriously. As opposed to so many that get blinded by dollar signs and couldn’t be bothered to, ya know, verify some vital information.

  9. Sam Glover says:

    I didn’t outline this in my post, but it does matter whether you go to a mortgage broker or a bank. Since the bank is writing the check, they tend to require pretty serious verification. Once the in-house mortgage broker finishes the app, it goes to underwriting down the hall.

    With a mortgage broker, the broker prepares the application and shops it to several lenders.

    We’re talking about brokers with few scruples here, so they aren’t shopping apps to the most scrupulous lenders. These lenders usually plan to sell the loan within a few weeks, anyway, so they don’t mind so much if the numbers aren’t accurate. It isn’t their dollars on the hook, or at least it won’t be for long.

    To me, it sounds like hot potato, and each purchaser of the loan is just praying that they didn’t get stuck with a borrower who couldn’t afford the loan. But if they do, hopefully the broker’s appraiser didn’t also overstate the value of the home, and they should get a fair amount back.

    This all leaves the consumer holding the bag, as it were, since they are the one who gets foreclosed on, kicked out of their house, and left with a terrible credit rating for years.

  10. rich815 says:

    “Typically, in order to do stated asset/ stated income on a mortgage (at most reputable places), you have to have a high enough credit score such that you probably aren’t a high default risk. Otherwise, they require proof of income (w2′s, bank statements, etc).”

    Nope. Not if you’re willing to pay an “add-on” of only about 0.25-0.75 points (or the corresponding higher rate). Then they can just submit you as “stated income” with a credit score as low at 680, sometimes even lower (with perhaps a bit more add-on).

    What you say is true if you want the best prime rate and with no add-ons.

  11. Sudonum says:

    I’ve done stated income a couple of times and both banks required a certified copy of a current and 6 month old bank statement. One bank also wanted a copy of my Schedule C from my last tax return, with the amounts redacted. Didn’t really understand that one. That was it. I also paid a half a point more for the loan.

    The reason for the bank statements is for the bank to make sure that you have reserves to make the payments for 3-6 months if something should happen. And to verify that the funds are indeed yours, and not a relative helping you get the loan or loaning you the down payment. That was also probably why Planetdaddy’s bank wanted to know about deposits.