Five words to never to say to your lender

Getting a loan can be a difficult task in this economic environment. Many lenders won't even consider an application for a mortgage unless your credit score is above 740. Others will consider an application, but zap you with an outrageous interest rate.

Even if you have excellent credit, there are still some phrases you should never say when trying to get a loan. For example:

1. DESPERATE

One of the worst things you can say to a loan officer is that you desperately need the money, then ask how can you speed up the loan process. That's putting a big red flag in front of the loan officer. He'll wonder what the emergency is and is more likely to decline your application.


An application process takes time, and there's not likely anything you can do to speed it up. By trying to underscore how urgently you need the money and pressure the loan officer for a quick decision, you're likely just to raise doubt about whether you can afford the loan. The best way to approach the lender is calmly, explaining why you want the loan and then asking what the bank's procedure is for approval.

2. UNEMPLOYED

If you tell a lender you expect to be laid off, you'll almost guarantee a denial because that statement indicates your current income may not be long term. Yet if you haven't received a layoff notice yet, it wouldn't be lying if you don't mention your fears to the bank. So if you think you might be laid off in the near future but haven't been notified yet, you can truthfully fill out a loan application with your current income information. Banks only look at your current employment history, not your future.

In fact, one way to save a home if you fear a future layoff is to apply for an equity line as a way to make mortgage payments. I definitely don't recommend this as a first option, but with long-term unemployment the norm these days, sometimes that's the only option for saving a home and avoiding foreclosure.

Apply for the equity, but don't use it. Instead, keep it available in case you need it while you're not working. You won't lose that equity line if you lose the job, and it may be exactly what you need to stay in your home. But, remember, once you use up that equity, your house will be at risk of foreclosure if you don't pay the mortgage or the equity line. So tread carefully when putting any kind of mortgage on your home.

3. ENTREPRENEUR

Telling a lender you're planning to start your own business is another almost sure-fire way to guarantee a loan denial, because you've got no way to prove what your future income will be. If you're still in the "thinking of starting your own business" phase, you don't need to tell that to the banker as long as you haven't given notice on your job.

As with an impending layoff, you might consider applying for an equity line of credit on your house in order to keep up with mortgage payments while you're waiting for your business to take off. And remember, don't use the equity until you really need it. And don't use it for your business, either, because once it's gone, you might not have enough money to pay back the bank and then you risk losing your house.

4. BACK TAXES

Banks don't lend money when you tell them you want to use it to pay off tax debts. Banks know they have no rights over the government when it comes to tax collection, and if you give the bank any idea that you owe the IRS, you'll likely be denied for that loan you're seeking. If the IRS has already put a lien on your home, you won't be able to avoid a discussion with your lender about it because that's a public document the bank can access. But if there's nothing on the public record, then it's better just to say you need additional credit for renovation, your child's education or just about anything other than you owe the IRS.

5. GAMBLER

If you're a compulsive or habitual gambler, you've got a more serious problem than just being short of money. But if that's what you're looking for from the bank, telling the lender you have a gambling problem means there's little chance you'll get the money you need. While there's almost no way for the bank to find out about your gambling debts--such debts aren't recorded by credit bureaus--you should fill out the application for a personal loan truthfully but just say you need the money to pay off personal debts.

But before you get the money to pay off those debts, be sure you have the problem under control or you'll just be digging a deeper hole for yourself in the future. Gamblers Anonymous is a good place to start if you need help.

One last word of advice: Whatever you do, never lie on a loan application. Lying is fraud, pure and simple.

And fraud on a mortgage application is an extremely serious act. Under the Fraud Enforcement and Recovery Act, which was signed into law in May 2008, penalties for conviction of mortgage fraud can be a maximum of 30 years in prison and a fine of up to $1 million. The statute of limitations was also increased to 10 years from five years.

So let's say you're applying for a mortgage on a property you intend as an investment. The last thing you want to do is lie on your loan application and say that the property will be your primary residence. If you end up not being able to pay your bills, the lender could actually ask for a criminal investigation. If they find out you lied on your loan application, they'll most likely pursue criminal action.

Because the FBI has found a strong correlation between mortgage fraud and loans that result in default and foreclosure, they've set up mortgage fraud task forces in some of the hardest hit areas. The top 10 mortgage fraud areas are California, Florida, Georgia, Illinois, Indiana, Michigan, New York, Ohio, Texas and Utah. Other areas significantly affected by mortgage fraud include Arizona, Colorado, Maryland, Minnesota, Missouri, Nevada, North Carolina, Tennessee, and Virginia. More and more people are being caught each year, so don't even think about lying on a mortgage application. This whopper can really come back to haunt you.

Lita Epstein has written more than 25 books including "Surviving a Layoff: A Week-By-Week Guide to Getting Your Life Back Together" and "The Complete Idiot's Guide to Improving Your Credit Score."