Tips on Avoiding Mortgage Fraud

Mortgage fraud is quite commonplace in society because many people do not realize when they are committing it. Doing things like telling "little white lies" on a mortgage application constitutes "fraud to qualify" and is a crime. If you inflate your income with the intent to deceive, or tell the lender that you got your down payment as a gift from a family member (and convince them to lie when they are called), when it is really a loan from them, you are committing mortgage fraud.

What's the Big Deal?

Mortgage underwriting is a long and extensive process that checks many factors of your financial and credit status before determining whether or not the lender can assume the risk of offering you a mortgage loan. The mortgage rates put forth by lenders are established based on information you give in your application and if that application is false in any way, you are making the bank take on more risk than they had imagined. For example; if you lie on your application that your $10,000 down payment was a gift from your mother, when in fact you agreed between you that you would pay it back $100 per month, the bank when figuring out your total debt obligations does not have a complete picture because that $10,000 is a new loan to you that must also be repaid - perhaps the lender would have thought twice about offering you a loan had they known you would also be paying someone $100 per month out of your income, someone close to you and whose relationship you value more than your relationship to the bank.

Tips for Avoiding Mortgage Fraud

Mortgage fraud as a crime is prosecuted on a regular basis across the country. Men and women sit in jail today because of it and claiming ignorance is no excuse, because all of this is clearly spelled out in the paperwork you sign when filling out your mortgage application. To avoid possibly falling afoul of the law and risking prison time keep these suggestions in mind when you are shopping for the best mortgage rates:

• Be completely honest on your applications: All of them. And when talking to the banker or the underwriter, your realtor and the escrow company, just tell them the straightforward truth. Try to keep in mind that lying about your status to try to get a home not only risks hurting the lender, it will probably also hurt you. If their decades of experience and actuarial tables and underwriting statistics lead them to the conclusion that you cannot afford the house you want, then you probably can't and are best off waiting rather than lying and possibly ending up in over your head in mortgage payments.
• Don't conspire with the seller: Another way that mortgage fraud often happens is when desperate home sellers seek to "work under the table" with interested buyers to increase their chances of getting a loan (so they can get out of the house). Types of conspiracy may include offering you cash to pay for your down payment and then upping the selling price stated on the loan to compensate, or even the reverse - lowering the selling price of the home and then asking you to pay them back the difference over time.
• Be the buyer: A "Straw Buyer" is a term given for someone who pretends to apply for and purchase a home when, in fact, someone they know will actually be the one living in the home and paying the mortgage payment to them. This is an illegal activity that is done because someone is worried that their credit or employment record is not sufficient to land them a home on their own.