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Why Lying on Your Mortgage Application Just Isn’t Worth the Risk

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Getting denied by a mortgage lender can be frustrating — but obtaining a mortgage by deception is never worth it.

When you apply for a loan, you’ll submit information about your income, employment and the home you wish to purchase. It can be tempting to fudge the numbers to give you more assurance that you’ll be approved. But there’s a simple term for this action — mortgage fraud. Committing mortgage fraud is a serious federal crime that can land you fines of $1 million or more, plus three decades in prison.

In this article, we’ll go over common types of mortgage fraud and the penalties you might face.

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What is mortgage fraud?

Mortgage fraud is a crime committed when a person intentionally makes a misleading written statement to try to get a mortgage. The lie can be a misrepresentation or an omission of pertinent information. When a bank uses this information to make a decision to approve a mortgage or set the terms of the loan, that’s mortgage fraud. Most of the time, mortgage fraud occurs when a borrower lies on their loan application.

Mortgage fraud can occur through a scheme to make money — known by the FBI as “fraud for profit” — or simply to obtain a house, called “fraud for property” or “fraud for housing.”

Fraud for housing most often occurs when someone misstates their income or assets on a loan application to entice a lender to approve their mortgage, as the lender likely wouldn’t have approved the loan if they knew the real information. Fraud for profit usually involves mortgage lenders or brokers and can take the form of identity theft, straw buyers or illegal flipping schemes.

6 types of mortgage fraud

1. Income fraud

With income fraud, a borrower tells a lender that they earn more money per year than they actually do. This makes it more likely they’ll be approved for the mortgage, since lenders look to see whether their borrowers make enough to pay back their loan.

This type of fraud was especially common in the early 2000s before the financial crisis, when banks relied on “stated income loans” to boost profits. With these loans, lenders relied solely on the information given to them and did not attempt to verify a borrower’s income.

2. Occupancy fraud

In this type of mortgage fraud, a borrower says they’ll live in the home they’re buying, but they’re actually purchasing it as an investment property. This is a big deal because many mortgage programs are exclusively used for buying a primary residence.

In addition, mortgages for investment properties are more expensive, and lenders typically require a larger down payment for a home that isn’t one’s principal residence. The interest rates for an investment property are usually higher, too.

3. Employment fraud

Employment fraud occurs when a person submits incorrect information about their job history on their mortgage application. With this type of fraud, a person may put down a company they didn’t really work for, or invent a company altogether.

Lenders want to see steady employment, and often attempt to verify a person’s career history when underwriting a loan.

4. Down payment fraud

This can occur in several different ways, but generally involves misrepresenting the source of the down payment made when buying a home. When this happens, a lender may issue a mortgage for an artificially high price.

This can happen if a person who doesn’t have the money for a down payment convinces a home seller to report a higher sales price, or if a person loans a borrower money for a down payment but falsely calls it a gift. This could also include a home builder who tries to sell properties by giving down payment assistance to buyers who don’t disclose it.

5. Straw borrower fraud

If someone other than the person who’ll be living in the home applies for the loan, that can lead to straw borrower fraud. For example, if a person is denied a loan, they may ask their parents to apply in their stead. If the parent claims on the mortgage application that they’ll be the ones living in the home, when it’s really the child — that’s fraud.

6. Illegal property flipping

This mortgage fraud scheme involves buying a home, then quickly selling the property after submitting a fake appraisal at an artificially high price. The lender issues a mortgage based on the higher price and the fraudsters keep the profits.

This is different from legal property flipping, in which a person buys a home, fixes it up and sells it for a legitimately higher price based on the improvements.

Consequences of falsifying information on a mortgage application

If you make a typo or mistake on your mortgage application, it’s not the end of the world. Contact your lender as soon as possible to get it corrected. Your closing may be delayed, but all of your paperwork needs to be in order.

But if you try to intentionally mislead your lender, you will get into trouble. Mortgage fraud is illegal and investigated by the FBI. Misleading your lender about any aspect of your mortgage application can lead to foreclosure or criminal charges. Bottom line: Obtaining a mortgage by deception just isn’t worth it.

Mortgage fraud penalties can include:

  • Foreclosure. If you misrepresent aspects of your loan application, your lender may have the right to “call the loan” if this is discovered. When this happens, the entire balance of the loan is due immediately. If you can’t pay, the lender may begin foreclosure proceedings.
  • Fines. Federal penalties can include up to $1 million in fines for mortgage fraud.
  • Prison time. You may face up to 30 years in federal prison for mortgage fraud. States also have penalties that can apply.
  • Civil penalties. Mortgage fraud can be punished by civil penalties as well as criminal ones. Civil penalties can include fines of $5 million or more.

By clicking “See Rates”, you will be directed to LendingTree. Based on your creditworthiness, you may be matched with up to five different lenders in our partner network.

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What Credit Score Is Needed to Buy a Car?

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Credit score to buy a car
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If you want to buy a car, you can probably find someone willing to sell you one and give you a loan, regardless of your credit score. But you might be shocked when you see what it’ll cost you. Car buyers who need a loan and don’t have a good credit score often end up paying more — a lot more.

Fortunately, by learning about credit scores and how they affect the interest rate on your car loan, you can take steps to make sure you always get your best deal.

What APR can you expect based on your credit score?

The higher your credit score, the better the auto loan deal you can get. That’s because if you have a proven track record of borrowing money and paying it as promised, the higher your credit score is (generally) and the lower the risk you are to lenders. These lenders might even compete with a bank or credit union for your business by offering you a lower interest rate loan.

If your payment history on previous loans is sketchier, however, you’re considered a riskier bet in the eyes of prospective lenders. They may think you could quit paying and that they would ultimately have to take steps to collect or repossess the vehicle. In return, lenders expect compensation for extra risk in the form of higher interest rates.

This chart, based on APRs for closed auto loans by credit score on the LendingTree loan platform in 2020, illustrates how your credit score can affect what you pay to finance your car:

Credit Score

Average APR

720 or higher5.49%
680–7197.21%
660–67910.07%
640–65913.39%
620–63914.71%
580–61917.65%
560–57917.44%
Less than 56018.36%
Credit unknown/invisible22.66%
All borrowers9.46%

The rate you get on an auto loan can also vary depending on whether you’re buying a new or used vehicle. Below, you can see data from the credit bureau Experian on average interest rates as of the first quarter of 2020. Note that your interest rate and your APR (annual percentage rate) will differ, with the APR reflecting your interest rate plus any fees the lender charges.

Credit Score

Average New Car Rate

Average Used Car Rate

720 or higher3.65%4.29%
660–7194.68%6.04%
620–6597.65%11.26%
580–61911.92%17.74%
579 or lower14.39%20.45%

If you have poor credit — a score of 580 or lower — your best option might be to find a cosigner with a better financial track record. Note that a cosigner is responsible for the debt if you default, so make sure the car payment is within your budget to protect your relationship with whomever you ask to cosign. For more in-depth guidance, read our article on how to get a car loan with bad credit.

Do auto lenders use the same credit score as other lenders?

There are a wide variety of credit scores to help meet different lenders’ needs. Because auto lenders place more importance on certain credit information, such as your history of making car payments, the credit score one auto lender sees may be slightly different from the score pulled by other lenders. Some of the credit score models specific to auto loan decisions include:

  • FICO® Auto Score 2
  • FICO® Auto Score 4
  • FICO® Auto Score 5
  • FICO® Auto Score 8

There shouldn’t be a huge difference between the score you may see for free from your bank or credit card issuer, but if you’re really curious to see your FICO® Auto Score, you’ll have to pay a fee of $29.95 a month (or cancel the subscription after your first month) to myFICO’s FICO® Advanced service.

What else do auto lenders look at besides my credit score?

Auto lenders look at several factors in addition to your credit history and credit score. According to the Consumer Financial Protection Bureau (CFPB), they’ll also consider how much income you have, your existing debt load, the amount of the loan you are applying for, the loan term (how long it will take you to pay it back), your down payment as a percentage of the vehicle value and the type and age of the vehicle you are purchasing.

The most important things car lenders consider when you apply for a loan, however, are your credit score and credit history. “You can even get a car loan when you are unemployed, provided you have a down payment and money in the bank,” said Nishank Khanna, chief marketing officer at Clarify Capital, a business lending firm in New York City.

What options do I have if I’m a first-time car buyer?

If you have limited or no credit history, and you haven’t taken out a car loan before, you might qualify for a first-time car buyers program. These programs can enable buyers to purchase a vehicle on a monthly payment plan. They also might decrease the APR and the amount of the down payment you have to make compared to other loan options.

For example, Ford offers a program you can apply to if you meet the following criteria:

  • You haven’t had previous car credit
  • There are no issues with your credit report
  • Your income is $2,000 a month or more

Note that these programs will typically have an income and/or employment requirement, so you’ll likely need to demonstrate that you are either currently employed and earning above the required minimum or show a written job offer for a position you will be starting soon.

How can I increase my odds of getting a low-interest car loan?

Before you apply:

  1. Check your credit report and improve your credit score. According to Experian, you should check your credit report at least three to six months before making a major purchase. This allows time to dispute any mistakes you may find. You should also check your credit score — if it needs improvement, decrease your debt load by paying down any credit card debt you’re carrying and consider asking your card issuers for a credit limit increase, which could boost your credit utilization ratio.
  2. Reduce debt, save for a down payment and don’t apply for new credit. The fastest way to boost a credit score is by paying down debt, as you’ll improve your debt-to-income ratio. Plus, by saving up for a down payment, you’re reducing the amount that you’ll have to finance with an auto loan. Finally, you’ll want to avoid applying for new credit, such as credit cards or other loans, before you apply for an auto loan, as applications can generate hard inquiries — which ding your credit score each time.
  3. Know what you can afford. “Always get a car that you can realistically afford in terms of the car payments, not necessarily what you would like to have,” said Khanna. Stick to your decision, no matter how persuasive the salesperson can be. You can use an auto loan calculator, such as this one by LendingTree, to estimate what your monthly payment might look like based on the cost of the vehicle plus sales tax, your down payment, the length of time you want to finance the car and other factors.

When you apply:

  1. Shop around for a loan and get a preapproval. Just like you wouldn’t buy a car without shopping around first, you shouldn’t sign up for a car loan without comparison shopping. Know that as the middleman, a dealership can raise a customers’ APR and take the difference as profit. Consider applying to several lenders directly, without the dealership as a middleman, to know what rates you qualify for. If you get a good preapproval, it can help you negotiate with the dealership. Your credit score won’t be adversely affected by applying to several lenders for one type of loan any more than applying to one lender if you do all applications within a period of two weeks. All three major credit bureaus allow this time window specifically so consumers can rate shop. You can also use our parent company, LendingTree, to fill out an online form and receive up to five potential auto loan offers from lenders at once.
  2. Ask the dealer to beat the interest rates offered by other lenders’ preapprovals. When the dealer mentions financing, say that you already have your own and you’ll only borrow from the dealership if it can find a lower APR offer for you. Dealerships have a large network of lenders; they may be able to find a lower rate for you and still get a small commission from the lender. If they can’t, then you know that you already have your best deal.
  3. Find a cosigner for your loan, if necessary. If you’ve just entered the workforce, for example, you may not have a significant credit history. “You may need to have someone cosign your loan to get a decent interest rate,” said Khanna. A cosigner can be a parent, sibling or even a friend. Your cosigner will be liable for the debt if you don’t pay, so make sure you can comfortably make the payments and that you won’t put the cosigner’s finances at risk if something goes wrong.
APR

As low as
2.49%

Terms

24 To 84

months

Fees

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

Disclosure

LendingTree is our parent company. LendingTree is unique in that they allow you to compare multiple, auto loan offers within minutes. Everything is done online. LendingTree is not a lender, but their service connects you with up to five offers from auto loan lenders based on your creditworthiness.


Advertised rate is for new and used auto loans for an offered loan amount of $10,000 with a 36 month term.

After you sign:

  1. Make your payments on time. Missing payments can hurt your credit score, cost you extra money due to late fees and even lead to the lender repossessing your vehicle.
  2. Talk to the lender if you have any problems. If you find yourself in a situation of financial difficulty, see if the lender offers assistance, rather than missing payments.
  3. Keep an eye on refinance rates. If your initial auto loan interest rate is high, it might make sense down the road to refinance at a lower interest rate as your credit score improves — that is, take out a new loan and use it to pay your old one off.

What else should I know before buying a car?

Avoid dealerships that advertise “no credit check” or “buy here, pay here.” These dealerships specialize in sales to buyers with poor or no credit and make their own in-house loans.

According to the CFPB, you may not only pay high interest rates to places that specialize in buyers with poor credit, but you may pay thousands of dollars more for your car than you would elsewhere. If these are the only dealerships where you can get a loan, consider walking away.

“If your credit score is less than 500, you may be better off getting a car you can afford to buy outright with cash,” Khanna said. You can always get a nicer car when your credit improves.

While comparing car loans, remember to pay attention to the total cost of financing your car and be aware that the interest rate and the APR are different. You can expect your APR to be higher than your interest rate, because APR will include interest rate plus any fees the lender charges.

You have plenty to think about when you’re shopping for a car. You shouldn’t have to worry about your loan at the same time you’re checking out features and searching car lots. Get a head start on financing before you go shopping, and you’ll have one less thing to worry about while you test drive your next car.

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Understanding the Difference Between Forbearance and Deferment

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Need a break from repaying your student loans? Both deferment and forbearance allow you to postpone payments on your federal student loans temporarily, but there are also differences between them.

In periods of deferment, for example, subsidized loans don’t accrue interest, so you don’t have to worry about your balance growing. Forbearance, however, can be easier to qualify for.

Generally, all federal loans are eligible for deferment or forbearance, but only some private student loans offer this option.

[Note: Some details may have changed due to coronavirus pandemic measures. Read more here.]

To get the full picture on pausing your student loan repayment, let’s look at the following topics:

Key differences between forbearance and deferment

One major difference between forbearance and deferment has to do with subsidized loans, which are loans that are available to undergraduate students with financial need. If you defer subsidized loans, you won’t have to worry about any interest accruing on your balance.

This is true whether you’re in your grace period during college or get a deferment for an alternative reason, such as economic hardship. That said, your unsubsidized loans will accrue interest during a period of deferment. And typically, all loans accrue interest during a period of forbearance.

The only exception to this is the emergency forbearance that has been put in place in response to the coronavirus pandemic (in which both payments and interest have been suspended on qualifying loans).

So if you have any subsidized loans, deferment is usually the better option. But if you don’t, there’s no major difference between forbearance and deferment, apart from the criteria you’ll need to meet to qualify.

This chart shows the difference between forbearance and deferment, specifically for subsidized loans.

Qualifying for forbearance and deferment

Another major difference between forbearance and deferment has to do with the criteria you’ll need to meet to be eligible. There are two types of forbearance: mandatory and discretionary.

If you meet a requirement for mandatory forbearance, your loan servicer has to grant your request. If you don’t, your loan servicer can decide whether or not to pause your payments.

Mandatory forbearance

Forbearance will be granted if any of the following pertain to you:

  • You are enrolled in a medical or dental internship or residency.
  • You are serving in a national service position, such as AmeriCorps, are part of the Department of Defense repayment program, are in the National Guard or are eligible for teacher loan forgiveness programs.
  • Your monthly loan payment is 20% or more of your gross monthly income.
  • You are teaching in a program that qualifies for loan forgiveness.
  • You qualify for partial repayment under the U.S. Department of Defense Student Loan Repayment Program.
  • You are called into active military duty.

Discretionary forbearance

Forbearance may be granted if any of the following apply:

  • You are enrolled less than half time (each school has their own definition of ‘half time’).
  • Poor health.
  • Unemployment (beyond the maximum deferment time limit).
  • A reduction in work hours.
  • A life-changing circumstance.

Deferment

You can qualify for a deferment if you are:

  • Enrolled at least half time at an eligible postsecondary school.
  • In a full-time course of study in a graduate fellowship program.
  • In an approved full-time rehabilitation program for individuals with disabilities.
  • Unemployed or unable to find full-time employment (for a maximum of three years).
  • Experiencing an economic hardship (including Peace Corps service) as defined by federal regulations (for a maximum of three years).
  • Serving on active duty during a war or other military operation or national emergency and, if you were serving on or after Oct. 1, 2007, for an additional 180-day period following the demobilization date for your qualifying service.
  • Performing qualifying National Guard duty during a war, other military operation or national emergency and for an additional 180-day period following the completion of your qualifying service.
  • A member of the National Guard or other reserve component of the U.S. armed forces (current or retired) and you are called or ordered to active duty while you are enrolled (or within six months of having been enrolled) at least half time at an eligible school.

Applying for forbearance or deferment

If you’re at risk of falling behind on your student loans, act fast. You don’t want your loans to go into default, as it comes with a host of bad consequences and makes your loans ineligible for forbearance or deferment until you get them back into active standing.

Start taking action by reaching out to your loan servicer. Be sure to keep the lines of communication open. You’ll need to work with your loan servicer(s) to apply for deferment or forbearance. You can sign into your Federal Student Aid account to see the details of your loans and loan servicers.

Your student loans can be placed in deferment for up to three years. Forbearance is typically granted in 12-month intervals for up to three years.

Note that putting loans into deferment or forbearance does not hurt your credit score. That’s another reason why you should pursue forbearance or deferment if you’re at risk of default — missing payments can do serious damage to your credit.

How to restart normal repayment on your student loans

Before your deferment or forbearance term expires, contact the servicer of the loan. You will need to explain your current situation.

Both you and the lender will create a repayment plan that will work for your new situation. Note that if your situation changes before your deferment or forbearance period expires, you can resume payments at any time.

If you’re able to make small payments, your lender might recommend an income-driven repayment plan, which adjusts your monthly payments in accordance with your income and family size.

Final words of advice on forbearance and deferment

If you’re having trouble paying your student loans, contact your loan servicer(s). Keep paying toward the current agreement. Do not let your loans go into default. If they do go into default, you must get current before applying for either deferment or forbearance.

If your loans are current, begin the application process for deferment or forbearance. Lenders want their money. They are willing to work with you to make that happen — even if payments are delayed. Talk with them. They will listen.

Whether you go with deferment or forbearance, what’s important is you’re addressing your situation and doing what it takes to avoid default.

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