Equifax, the global data, analytics and technology company, released a survey on mortgage fraud and the results were startling, particularly among millennials. Nearly 23% of millennials “believe it’s acceptable to inflate your income when applying for a mortgage,” according to the survey. That’s a shocking admission of dishonesty and almost double the percentage of the general population when asked the same question (12%).
So why are young people so inclined to embellish their financial qualifications as a means to attaining a mortgage? Perhaps it has to do with Canada’s increasing impenetrable real estate markets in big cities like Toronto and Vancouver, where getting your foot in the door can take years if not decades. By that view, it’s hard not to be sympathetic with those looking for an edge.
But mortgage fraud – defined as a deliberate misrepresentation of information to obtain mortgage financing that would not have been granted if the truth had been known – is a dangerous game. It can lead to overextended credit situations, causing you stress and the potential to default on payments, which will impact your credit score.
As Julie Kuzmic, Director of Consumer Advocacy at Equifax Canada, says, “What some may see as a little white lie during the mortgage application process could have legal consequences or become a very hard lesson for people to learn if they cannot keep up with their mortgage payments.”
Is mortgage fraud a victimless crime?
With 23% of millennials, and 16% of all respondents, saying mortgage fraud is a victimless crime, the Equifax survey tells us that this technically illegal act is being viewed in a similar light to jaywalking or highjacking your neighbour’s Wi-Fi signal. Nobody is getting hurt right? Wrong.
The reality is the victim will usually be the one committing the fraud. Inflating your income or withholding important financial information might get you a bigger mortgage, but you’re going to be on the hook for repayments that might be beyond your means. This could cause daily stress on you and your family. Not to mention impacting your overall financial health for a long time.
Don’t be persuaded by shady lenders or brokers who want your business and don’t care about your long-term future. If they encourage you to be less than truthful in a mortgage application, walk away or report them to your province’s financial regulatory body. Conversely, if a broker or lender suspects you of fraud, you could be reported and have your credit tarnished, affecting future applications. You don’t want that Scarlett letter, so to speak.
How to avoid mortgage fraud – start with your credit score
The Equifax survey also revealed a high number of mortgage applicants are not checking their credit scores going into the application process. That’s a mistake to think that claiming an inflated income is enough to secure a mortgage; you usually need a decent credit rating too. The survey had 60% of respondents saying they did not check their credit scores before approaching a lender.
Doing due diligence on your credit score will give you insight into how successful your mortgage application will be. Ideally, a lender or broker wants to see good credit behaviour, which is represented by a number between 300-900. According to Equifax, a credit score rated above 660 is considered good by most lenders. You can check your Equifax credit score for FREE using Borrowell.
Build your credit profile
As discussed, it usually takes more than the required income level to successfully obtain a mortgage – you also will usually need a history of good credit behaviour. That may not be realistic for everyone, but there are always ways to rehab your credit rating. In fact, Fresh Start Finance has written a guide to
Basically, you start the process by obtaining your credit report and checking it for errors. You never know what mistakes were made in the bureaucratic world of credit ratings. Some other quick wins include increasing the credit limit on a credit card or line of credit. That might seem counterintuitive, but it improves what’s called credit utilization, meaning the more credit you are not using, the better it looks. Try to keep balances at about 30% of your total credit limit.
Another tactic is to keep credit cards open even if you’re aren’t using them (putting credit cards in the freezer, for example, is good way to put them out of use). Credit history is a key factor that affects your credit score – 15% to be exact.
Those are the quick and easy ways to improve your credit score. Now here’s the long hard road – pay down debt and don’t ever, ever miss bill payments. Punctuality is vital in building a solid credit profile. In fact, it accounts for a whopping 35% of your credit score.
Pro tip: Set up automatic payments where possible, so you’ll never forget to pay a bill again.
Consider a side hustle to improve your mortgage chances
Instead of lying on mortgage applications and living like a criminal in the shadows of society consider pumping up your income the legit way. More and more young people are turning to side hustles to augment their incomes.
Although it is the primary reason, the advantage of a side hustle isn’t just added revenue. It also breaks up the monotony of your main source of income. If it’s something you’re passionate about, even better, because it can elevate your spirit to know your energy is being invested in something that matters to you. Plus, it will make you feel less “trapped” in your workaday life.
Can’t afford a home right now? Give it time.
Even if you’re not immediately ready to qualify for a mortgage, a broker will work with you and help you prepare for homeownership when the time is right. Just remember to be honest with your mortgage broker. A home could be the biggest purchase of your life – you don’t want it crashing down on you like a leaky roof.