Minimum Disclosure on Mortgages

We just finished a great 2-day Boot Camp in Salt Lake City, Utah this Monday and Tuesday. At the Boot Camp, a student started to discuss mortgage applications.  He was shocked when I said to never disclose more than was necessary to get the mortgage.  In fact, he thought he would be violating the law if he didn’t spill his guts and disclose everything he owned on the mortgage application.

Mortgage applications are an attorney’s best friend.  People disclose all types of assets on mortgage applications.  If there is a divorce, lawsuit judgment, deficiency or any other legal matter where an attorney wants to find assets, one of the best places to go is a mortgage application the individual has filled out.

Yes, the mortgage applications hang around, and they are quite easily obtained.  Most of the time, a mortgage application is a treasure trove of information for anybody hunting down assets. When you apply for a mortgage ask the mortgage broker what you need to show on the application.  They will tell you that you need to show a certain income and so much in assets.

Don’t show any more than that on the application.  If your day job’s income will qualify you for the loan, don’t throw in the consulting fees you make on the side.  If the house is enough collateral, don’t tell them about the two paid off rental units you have.

Use 401(k) accounts and IRAs as your assets, not savings accounts.  The 401(k) accounts, and to almost the same degree, the IRAs are protected from creditors, like the mortgage company.  The savings accounts are fair game for anybody that knows they are there.

The mortgage company is going to find any assets you have a loan against.  Disclose those assets and let them count the equity in the properties rather than disclosing the paid off properties you have.

Of course you should never use collectables (art, coins, gold, silver, etc.) on a mortgage application.  There is no need to tell the world you have such items.

You can’t fraudulently hide assets when there is a problem, but there is no need to advertise all of your net worth.  You may think it is an ego thing to show ten times more assets and income than necessary to qualify for the loan.  Don’t do it.  Swallow your ego.

If the mortgage company needs more to qualify you, they will ask for more.  Of course, they want to see every dime you have, but you don’t need to show them every dime – just what they need to qualify you for the loan.

You need to “opt out” on your mortgage applications.  If you don’t prevent the mortgage company from selling your information, they will sell it over and over.

Be wise with the mortgage companies.  They are mean and ugly, but they can’t demand more than they absolutely have to.  We’ll talk about how to keep your spouse off the mortgage application in another Blog.  Try to never have both spouses sign a mortgage application.