Here’s what could happen if you lie on a home loan application

a man attempting to fool his bank on a home loan application

In most cases, white lies are no big deal. In the case of running late to meet a friend, most people would have little trouble saying “I’m almost there”, even though you’re not on the bus yet.

But if it's something serious like a home loan application, a surprising number of people are willing to bend the truth. According to data from experian, it's estimated that 25% of Australians bent the truth when applying for a home loan with the most common lies being:

  • 29% did not disclose an upcoming job change.
  • 28% understated their existing debts.
  • 21% overstated their annual income.
  • 19% withheld that they were expecting a child.

This could be both illegal and unwise. Like many other situations in life, honesty is the best policy here.

Can lenders find out if you’re lying?

You’re not going to be the first person who has tried to get one over the banks. 

Banks have many ways of verifying the information you provide on your home loan application. 

Banks will need proof of your income, including recent payslips or Pay As You Go statements. If you attempt to overstate your income, the bank will easily be able to check this against the other information you’ve provided.

Likewise, if you have any outstanding credit card or personal loan debt, banks will be able to cross-reference your information with other lenders.

They can match bank credits to your payslips, check Australian Business Numbers, and look for anomalies in bank statements. If you’re wondering how to buy your first home, it helps to have your finances in check before you apply.

It's in the bank's interest to give people loans, but not if they aren’t getting what they signed up for. They’re going to be pretty careful about checking out potential borrowers, so they will likely spot inaccuracies in an application.

Your home loan could be rejected

If an honest mistake has been made, lenders will first ask you why the correct information wasn’t provided in the first place. If you simply forget to mention, say, a credit card, the lender could ask you to pay off the credit card and close the attached account before they approve the loan.

If an outright lie is uncovered during the application phase of the loan, it will probably be rejected. This could affect your credit score, which could make it harder to get a loan further down the line. 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 could become aware of any dodgy behaviour in the past. 

Your loan could be recouped by the lender

Even if the loan has been approved by the bank, if they find something incorrect in their audits after settlement this may violate the terms of the loan. In a worst case scenario, this can mean defaulting on your loan.

Depending on the terms of the contract, after a default the lender may require the loan to be repaid within 30 days, which would most likely mean selling the property and losing any other fees associated with the loan.

You could experience long-term financial hardship

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 actually afford, you may be making things more difficult in the long run.

Lenders can sometimes be quite generous when estimating your borrowing power, and it’s often recommended to aim in the middle of their recommendation to ensure you can comfortably make your repayments. 

Ultimately, you don't want to be stuck with a loan that you can’t actually afford. Borrowing above that amount could lead to a lot more financial stress than you would be facing otherwise.

With so many Aussie’s pessimistic about their financial future already, it might not help to burden yourself further 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 potentially be fraudulent activity, and in some extreme cases, this has gotten mortgage brokers into a lot of legal trouble.

There’s a reason why the Big Short and Wolf of Wall Street are cautionary tales. Managing a home loan can be hard enough as it is, there's no need to try and make it harder by covering up a web of lies.

For the answers to any other questions about home loans, Mozo can provide the answer. Check out our Home Loans hub for all your borrowing and buying needs.

Home loan comparisons on Mozo - last updated 13 August 2022

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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

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