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The penalties for lying on a home loan application
The penalty for lying on a home loan application is often getting the loan rejected, with a mark on your credit score. If your lender catches your lie after settlement they could cancel the loan.
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There's an understandable temptation to stretch the truth to make your home loan application appear more attractive. But lying on a home loan application in Australia can come with penalties. You might not get hit with a fine. And a dishonest application can get rejected. That hurts your credit score. Worse, if your lender discovers your lies after settlement they can cancel your home loan and force you to sell your property.
Common lies borrowers tell
According to a UBS study, the most common falsehoods peddled on home loan applications were inflating income and understating expenses. But these are far from the only lies borrowers tell on home loan applications. Some other common fibs include:
- Understating debts
- Overstating the value of assets
- Claiming an investment property is an owner-occupied property
- Using false employment details
- Misstating the source of deposit funds
- Claiming false residency status
Lenders have ways of catching you out
If you stretch the truth when applying for a home loan, you're likely to be found out. Lenders have systems in place for detecting fraud.
Pressure is on Australian lenders to ramp up their fraud detection. In November 2017, the Australian Securities & Investments Commission (ASIC) announced it would target small and large lenders with inadequate fraud detection systems.
Lenders share data to help prevent fraud, which means if you've stated your details differently on different applications, there's a possibility of your application being flagged for further review. Lenders also have sophisticated systems for detecting tampering of supporting documents, such as payslips and tax returns.
Even after your home loan has settled, many lenders conduct regular audits of loan applications post-settlement. If you've lied on your application and it comes up for auditing, the level of scrutiny is likely to identify any falsehoods.
Your application could be rejected
If your home loan is in the application stage and your lender uncovers false information, your application will be declined. But there are further ramifications.
Because lenders share data, they compile and share lists of known fraudsters. This means you could be blacklisted and find it impossible to secure finance from any lender. One lie could entirely derail your home ownership dreams.
Your loan could get called in
Even if you manage to avoid detection throughout the home loan application process, you could still be caught out. Lenders sometimes conduct post-settlement audits of home loan applications. So even if your home loan has already settled, you're not in the clear if you lied on your application.
If a post-settlement audit uncovers fraud on your home loan application, your loan can be called in. This means you have 30 days to pay off your mortgage in its entirety. For most borrowers, this will mean a forced sale of their property. One lie on your mortgage application could see you lose your home.
You're putting yourself in financial hardship
Ultimately, even if you get away with lying on your application, you're still hurting yourself. Lenders have strict criteria for income, assets, expenses and liabilities for a reason. They help your lender determine whether or not you can afford a home loan.
If you lie about your financial position, you could end up with a home loan you can't actually afford. You might get your home loan approved, but this is cold comfort if you find you can't actually meet your loan repayments.
A little white lie on your home loan application might seem harmless enough. But the fallout can be incredibly severe. When it comes to applying for a home loan, honesty really is the best policy.
Get help from a mortgage broker
If you are struggling to organise a home loan application or are worried about rejection, talk to a broker. A qualified mortgage broker can help you organise your mortgage application paperwork and avoid any big errors.
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