In most cases, white lies are not a big deal. In the case of being late to meet a friend, most people would have little trouble saying “I’m almost there”, even if you’re not on the bus yet.
But if it’s something serious like applying for a home loan, a surprising number of people are willing to twist the truth. According to data from Experian, an estimated 25% of Australians have misrepresented the truth when applying for a home loan, with the most common lies being:
- 29% did not disclose an upcoming job change.
- 28% underestimated their existing debts.
- 21% overestimated their annual income.
- 19% said they were expecting a child.
It could be both illegal and reckless. Like many other situations in life, honesty is the best policy here.
Can lenders know if you’re lying?
You are not going to be the first person who has tried to get one on the banks.
Banks have many ways to verify the information you provide in your mortgage application.
Banks will need proof of your income, including recent payslips or Pay As You Go statements. If you attempt to overestimate your income, the bank can easily verify this against other information you have provided .
Likewise, if you have unpaid credit card or personal loan debt, banks may cross-reference your information with other lenders.
They can match bank credits to your payslips, check Australian business numbers and look for discrepancies in bank statements. If you’re wondering how to buy your first home, it’s worth checking your finances before you apply.
It’s in the bank’s interest to give people loans, but not if they don’t get what they signed up for. They will be very careful when vetting potential borrowers, so they will likely spot inaccuracies in an application.
Your mortgage could be refused
If an honest mistake has been made, lenders will first ask you why the correct information was not provided in the first place. If you just forget to mention, say, a credit card, the lender might ask you to pay off the credit card and close the attached account before approving the loan.
If an outright lie is discovered during the loan application phase, it will likely be rejected. This could affect your credit score, which could make it harder to get a loan later. Negative information like this can stay on your credit report for up to ten years.
On top of that, banks share data, which means multiple lenders might be aware of any questionable behavior in the past.
Your loan could be recovered by the lender
Even if the loan has been approved by the bank, if they find anything incorrect in their post-settlement audits, it may violate the terms of the loan. In the worst case, it could mean defaulting on your loan.
Under the terms of the contract, after a default, the lender can demand that the loan be repaid within 30 days, which would most likely mean selling the property and losing all other fees associated with the loan.
You could experience long-term financial difficulties
If a lender tells you that you can’t borrow a certain amount, it’s usually for a good reason.
If you try to borrow more than you can really afford, you risk making things more difficult in the long run.
Lenders can sometimes be quite generous in estimating your borrowing capacity, and it’s often recommended to aim for the middle of their recommendation to ensure you can comfortably make your repayments.
Ultimately, you don’t want to be stuck with a loan you can’t afford. Borrowing beyond this amount could lead to a lot more financial stress than you would otherwise.
With so many Aussies already pessimistic about their financial future, that might not help you further burden yourself with a loan you can’t afford.
There could be legal consequences
Providing false documents and information to a loan provider could be a serious mistake with legal ramifications.
Making false statements in home loan applications could be fraudulent activity, and in some extreme cases, it has caused a lot of legal trouble for mortgage brokers.
There’s a reason the Big Short and the Wolf of Wall Street are cautionary tales. Managing a home loan can be hard enough as it is, there’s no need to try to make it harder by hiding a web of lies.
For answers to any other home loan questions, Mozo can provide the answer. Visit our home loan center for all your borrowing and buying needs.
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