For new home buyers looking to buy a home around Lexington or Arlington MA, an early step you will take is to speak to a lender and obtain a pre-approval letter. You might be surprised to learn that many people are “less than truthful” with lenders when discussing their financing options. I always ponder the reasoning behind this “less than truthful” approach! When you think about it, what’s the point? Just as a doctor or accountant cannot give you accurate advice without your truthful participation, neither can a lender. If you pick and choose who who you share your truths with, there is ONE place you should be totally straight up, and that’s with your lending officer.

1) Professional Advice – When you are speaking to a lender and looking to secure a loan, you will be asked for certain information required for a lending institution to loan you perhaps hundreds of thousands of dollars. To be less than truthful is not only illegal on an application, your lender will be unable to give you the useful information you truly need to make good decisions for yourself and your family. Lenders know the ever-changing guidelines, and they will let you know not only what you can afford, but if you do have extenuating circumstances, they can help you work through them legally. To not avail yourself to their advice, and to deceive a bank of full disclosure, is double folly. Lying on stated income loan application is fraud, and can result in penalties or foreclosure.

2) What’s your time worth? –  Sometimes people don’t provide all the right details to their lender because they don’t want to take the time to gather all their financial information, but if the truth comes out while your loan is trying to pass through operations you may have to start over or go through additional procedures to set things right. If your purchase involves relocation, selling of existing home, etc. this delay could blow up to giant proportions and affect many people in the process.

3) Better service – Even if it is slightly embarrassing, be willing to share your obstacles. Regardless of the circumstances, whether it is it immigration status, several personally owned businesses, poor credit rating, income that is not documented, an ex-spouse that has you financially entangled (just an example), you MUST tell your loan officer of these noteworthy circumstances so he or she can work around (and through) them. Waiting until your documentation is in operations for approval is not the time to suddenly be completely truthful. Last minute surprises lead to underwriting complications and delays, possibly causing you to miss critical deadlines – a costly problem you want to avoid!

4) Lower interest rate – We have found that clients who do a full pre-approval well in advance of writing an offer and applying for a loan, who leave nothing out, supply all materials requested by their lender, and have no “surprise” information appear later, have the smoothest experience getting a loan, at the best rate. They will always try to save you money if your circumstances allow. Even though it feels unnatural to share much of your private information with a stranger, it is the only way to get excellent and true advice when making one of life’s biggest investments.

I have heard of people “doctoring” pay stubs, providing statements with intentionally missing pages, lied about marriages, divorce in progress, sources of funds intended for deposits, and even who have receive suspiciously large sums of money right before closing. In many cases a good lender can work around the challenge once it’s identified, but “surprises” of this nature normally ended up costing the client time, money and aggravation.

Don’t take it personally when you are asked for private information and documentation by a lending officer. They do not ask for personal information unless it is (a) required by law or (b) the policy of the institution. Since the person working on your mortgage cannot change the rules, it is in your best interest to take time to develop some trust, and if you put in an application, do it completely and honestly from the beginning. If you cannot be completely truthful, this may not be a good time for you to buy a home! Your lender has your best interest in mind, and you don’t want to tie their hands when they are the link between you and buying your Dream Home. Pick a reputable lender and you will not be disappointed.

So, when you start the pre-approval process, and you are asked for your personal and financial information, give it straight and you will get better service and save money and time.

This week’s guest writer for the Arlington, MA Real Estate Blog is Wells Fargo Senior Lender Michael J. Tanionos.

Like many of my clients, you might be following fairly responsible spending practices for most (or all) of your adult years, but could find yourself challenged to get the best interest rate on your home mortgage because your credit score is not what lenders consider to be excellent. Too often I come across very qualified new home buyers who end up paying more for their house over time, to the tune of tens of thousands of dollars – all over very simple issues.  Here are some common, but unknown, pitfalls:

1) Opening & Closing Credit Card Accounts: You are ready to buy a beautiful hand tufted oriental rug imported from China, and if you get the Macy’s charge card, you can save 30%. If it’s $1,500, that’s some significant money. You sign up for the card, buy the carpet, pay in full and then CLOSE the account. Why not? You are financially responsible and don’t want too many credit cards out there with your name on it, you think. But, the moment you close the account, your credit score will drop. That’s because you used to have access to, let’s say $ 5,000 of credit you no longer have access to. This increases what lenders call your total credit limit debt ratio, which negatively impacts your score. Thus, you are considered a greater risk.  It’s counterintuitive, but it’s true.

2) Haggling with Utilities: Due to some problem with a utility or the phone company, you have been more than fair and continued to pay your bill on time. But finally you are fed up, you take your complaint to anyone who will listen – in store, by phone, by mail, etc., and then decide that the thousands of dollars a year you give them isn’t worth this. There should have been a resolution by now, so you stop paying a month or so before your agreement is expired.  At this point, the issue is only over $30 (or it could be more), but the problems it will cause you, and the subsequent credit score risk that will follow , will eventually lead to paying exponentially more come mortgage time and for the life of the loan. No matter how right you may be, in the eyes of the credit gurus, it doesn’t matter who was right, they just see the lower credit score. Being so driven to win the battle over $30 can cost you thousands on your mortgage in unnecessary interest. So what’s the lesson? Pay the bill, then fight the good fight for a refund.

And, of course the most obvious …

3) Don’t buy what you can’t pay for: Like eating, it seems simple … eat when you are hungry and stop when you are full. But many people (including myself) often struggle with that simple notion. Except for a house and a car, you shouldn’t finance anything else you don’t have to.  Your credit cards should be used to get points and free simple luxuries you may need (like travel, electronics, etc.) Paying for items with a credit card also helps you track where and how you are spending your money. So use them responsibly, and don’t carry balances over month to month.

A Positive Step to Take: Sign up for Free Credit Report Alerts. This seems like just another thing that will cost you money,  but trust me, it’s worth every penny. For as low as $12 a month you can sign up for a service that will alert you via email and or text anytime your credit score moves, your credit report is pulled, or a new account is opened. This is extremely valuable in preventing identity theft as often times if you can catch it early enough, the impact to your credit and financial life will be minimal.

I’ve advised many clients to practice these steps and come back in six months or a year, and they have saved thousands of dollars … just by buying a home at a time in their financial lives that made the most sense. I hope you do too.

Michael J Tanionos has graciously shared this information with our Blog readers. He may be contacted at michael.j.tanionos@wellsfargo.com