Mortgage Lender's Top Red Flags. In an effort to issue quality loans that will actually become a performing asset to banks, lenders have stepped up their fraud prevention and are heavily scrutinizing mortgage applications.
The research firm CoreLogic estimates that fraudulent residential mortgage originations will total $7.4 billion in 2011, nearly 40% lower than the $12 billion in 2012!
Investigations typically begin the moment an application is received. The lenders verify your Social Security number and often check to see if a borrower's name shows up on the government terrorist list! They will check credit reports and verify employment and then do it again days before closing the deal so be careful what you do while in escrow on a home purchase for which you need a loan!
Mortgage Lender's Top Red Flags. What are they looking for? The following are four common triggers and what you can do about them .
1. A LARGE BANK DEPOSIT - Lenders are required by federal guidelines to confirm that funds in an account come from bona fide sources, like a gift from your Grandmother for the down payment. They will "source" the deposit and find out where exactly it came from. What is a large deposit? This depends on your income. If you earn $6,000 per month but you suddenly make a $15,000 deposit beyond your paycheck, they will want to know where it came from. If you recently got married and received a large amount in monetary gifts, they might ask for your marraige lisence to prove it. CHECK WITH YOUR LENDER BEFORE MAKING ANY LARGE DEPOSITS OR WITHDRAWLS WHILE IN THE LOAN PROCESS!
2. YOUR ADDRESS - If you are buying a home 3 hours from LA yet you list your employment with a company in Hollywood, your case may draw scrutiny. Likewise, a couple with 3 children who are buying a 2 bedroom home may be scrutinized about whether this will be their personal residence or not. Lenders want to make sure that if your contract is for an owner occupied purchase, its not actually going to be a rental or a flip property.
3. NEW OR UNDISCLOSED DEBTS - When you're in the process of buying a home, DO NOT make any big purchases or finance any new appliances or furniture for the house, buy new cars, etc...Your debt to income ratio is a huge factor in loan qualification so be very cautious when considering taking on any new debt!
4. INCOME ISSUES - Lenders will check all sources for income and generally want to see at least a two year history of that income in order for it to be accounted for the loan purposes. If you claim to make twice what the average income is for your proffession, your lender might raise an issue. I have a client right now who receives residual income for her script writing and the lenders are digging deep into the source, frequency, and longevity of this income in order for it to be included in the loan approval .
Bottom line is, when applying for a home mortgage, be honest on your loan applications, do not make any random large deposits, large purchases, take out lines of credit of any kind, and be prepared for the bank to dig deep into your personal & financial affairs in order to avoid raising Mortgage Lender's Top Red Flags!
Good luck out there!
Mortgage Lender's Top Red Flags
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