The Importance of Full Disclosure in Real Estate: What Every Homebuyer and Seller Needs to Know
Why Full Disclosure Matters
Buying or selling a home is a significant financial and emotional investment. But one of the most overlooked aspects of the process is full disclosure—being upfront and honest about financial details, property conditions, and anything else that could impact the transaction. In a recent episode of The Lofty Lender podcast, I sat down with Charlie Chedester to break down what full disclosure means, why it's crucial, and how failing to disclose information can create major problems.
So, if you're wondering, “Do I have to disclose that?” the answer is almost always YES. Let’s dive into why transparency is key and how it can protect both buyers and sellers.
Buyers: What You Need to Disclose to Your Lender
When applying for a mortgage, full transparency is critical. Your lender needs to know everything about your financial situation. That means disclosing all sources of income, job changes, large deposits, and even side gigs—yes, even that bartending job where you get paid in cash.
Here’s why:
Lenders evaluate consistency in income and spending. If sudden, unexplained deposits appear in your bank account, it can raise red flags with underwriters.
If you don’t disclose all sources of income and they later show up on your financial statements, it can delay or even derail your loan approval.
Any major job changes (especially switching to a commission-based job) can impact loan eligibility.
Charlie and I have seen too many cases where buyers unintentionally complicate their loan approval by not disclosing certain income sources upfront. If you're ever unsure, tell your lender. We’d rather have too much information than not enough.
Sellers: Why You Need to Be Honest About Your Property
If you’re selling a home, full disclosure applies to the condition of your property. While some sellers may think they can keep quiet about issues like a leaky basement or foundation cracks, hiding problems can lead to legal trouble down the road.
Many buyers are suing sellers after closing for failing to disclose major property defects.
Seller disclosure forms exist to protect you. If you disclose an issue upfront, buyers can’t claim you hid anything later.
Even small things—like occasional bats in the attic or past mice problems—should be mentioned. If it’s minor, a buyer likely won’t care, but if it turns into a bigger issue later, you could be held liable.
Bottom line: If you have to ask, “Should I disclose this?” the answer is almost always yes.
Investment Properties & Second Homes: Defining Intent
For investors or buyers purchasing second homes, intent matters. There’s a big difference between an investment property and a second home, and lenders need to know your true intentions to structure your loan correctly.
Second homes require the owner to live there part of the year (often at least two weeks).
Investment properties are intended for rental income and come with different loan requirements and down payment rules.
Misrepresenting intent is mortgage fraud, which carries severe consequences.
Charlie and I can’t stress this enough—be honest about your plans. Lenders have seen it all, and we can help find the right loan for your situation, but only if we have all the facts.
Key Takeaways: The Three Rules of Full Disclosure
Have a Conversation: Talk to your lender and real estate agent. The more information we have, the better we can guide you.
Be Transparent: It’s better to over-share than leave out critical details that could cause issues later.
Trust the Process: Lenders and agents know the rules and can help you navigate them. The more we know, the more we can help.
When it comes to buying or selling a home, honesty isn’t just the best policy—it’s essential. A smooth, stress-free transaction starts with full disclosure.
Listen to the Full Episode
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