After you submit a mortgage application, you’ll be expected to document standard financial details such as your income, tax returns, employment history and bank assets. But it’s the not-so-obvious things that you don’t disclose to your mortgage broker or lender that could derail your home purchase.
It’s true that lenders give you what feels like a financial colonoscopy to determine your ability to repay your loan. After all, they’re taking the upfront risk by fronting hundreds of thousands of dollars to help you buy a home, so you can’t blame them for making sure you’re legit, right?
That said, it can be tricky to know what details to share with your lender as you wade through the process. When in doubt, though, undiluted honesty is always the best policy, say lending experts Kyle Kamrooz, co-founder of online lending platform cloudvirga, and Jason Pierce, assistant sales manager with American Financing in Aurora, Colorado.
Here are seven things they say you should always disclose from the start:
1. Large bank deposits
This one is a biggie. Mortgage lenders require at least two months’ worth of bank statements, Kamrooz says, pointing out that large cash deposits send up major red flags in underwriting. Be prepared with documentation and a good reason to explain deposits more than $100, or you risk stalling the underwriting process, he adds.
2. Employment changes
Most lenders will check your income and employment more than once throughout the transaction. If you anticipate a job change, lose your job or start your own business — which changes your tax status (for instance, moving from a W-2 to a 1099 for self-employment) — tell your lender right away, Pierce says. Not doing so can impact your eligibility to qualify for a loan and pose a problem before closing.
3. Income of all types
How much you earn is a key piece of the lending puzzle, and you don’t want to lie about it and wind up with a loan you can’t afford. If you haven’t been at the same job for at least two years, you’ll need to provide a documentable job history for each position you’ve held in that time frame. And word to the wise: Don’t try to hide any source of income, or you could put your entire loan application — and goodwill with your lender — in serious peril. “It never pays to lie,” Pierce says.
4. Divorce, child support or bankruptcies
Believe it or not, these personal details are all fair game for your lender, too. If you don’t disclose income from child support or alimony (or that you pay it to a former spouse), there’s a potential for a lot of liabilities now and in the future, Kamrooz says. Also, if you’ve had a bankruptcy filing recently, you typically have to wait two years after the bankruptcy is discharged before a lender will consider you for a new mortgage loan.
5. Past addresses for previously filed tax returns
A lender qualifies you based off your income, and your IRS tax returns for the past few years give credence to verifying your income. Your lender will request a copy of your tax transcripts and compare that data against the income documentation you’ve provided, Kamrooz says. If the addresses don’t match up, it could create a verification issue for your mortgage application. Make sure you have a list of past addresses handy in case your lender requests this information so your loan doesn’t get derailed.
6. New loans or major purchases
You’ve probably heard that you shouldn’t buy a new car or take out a big loan right before or while you’re applying for a mortgage. That wisdom is spot-on and the reason is simple: It increases your debt-to-income ratio, Pierce says. This is especially true for lower-income or Federal Housing Administration loan borrowers, who typically have a tight DTI to begin with, Pierce adds. The higher your DTI, the higher your interest rate and the riskier you are to a potential lender, which can impact what type of mortgage you qualify for.
7. Plan for your financial assets
You have to come up with a large sum of money for your down payment and closing costs, and your lender will expect proof that you have ample funds to follow through with your purchase. Many borrowers don’t have a plan for where some of that money will come from, and they really need to have that sorted out ahead of time, Pierce says. If you’re not sure how to structure things, ask your lender for guidance and to give specific examples of assets you should account for, such as checking and savings accounts, retirement and pension accounts, brokerage accounts, college savings funds, and financial gifts from friends/relatives.