Committing mortgage fraud is breaking the law. Don't break the law. That seems like a no-brainer, but here's why you should not do it. If you start an important legal transaction by cheating, you run the very real risk of a) getting caught, and b) getting involved with people who will cheat you. Con artists work their cons by first getting their marks to engage in something they know to be illegal or unethical. Then, the con artist goes in for the kill. The shamefaced mark, left with empty pockets, is unlikely to report being taken. Why not? Because the mark did something wrong to begin with. Do you want to be the victim of a con artist mortgage broker? No? Then don't start your effort to obtain a mortgage by lying on your mortgage application.
A lot of people think, "I intend to pay this mortgage on time, so what's the harm in pretending I have more cash than I do?" The harm is they can't afford the mortgage. Making the payments will negatively skew their manner of living. They'll be house rich and cash poor. They'll suffer the whole time they live in that house, because too much of their income goes to the mortgage and not enough is left over for an occasional pizza. Improved quality of life is usually why people seek to own a house. You have not improved the quality of your life if you have no cash left over each month after you pay your mortgage.
Some people think, "My parents are lending me the down payment, but I need them to sign a letter saying it's a gift. I intend to pay them back, of course." Those people should not try to buy a house, because they will sour their family relationships over asking other people to commit fraud. Then the high cost of home ownership will surprise the naive new owners, who will be unable to pay the parents back. Instant family trouble. Don't do this to yourself.
Lenders do not make up qualifying ratios and required down payment amounts out of thin air. Whom do you think has the most expertise about home buying? Not the buyers. The lenders do. Lenders see people buy houses all the time, whereas during an entire lifetime, most people only buy one or two or maybe a couple more houses. Lenders have the experience to know that putting every dollar you have into a loan, and not leaving enough for day-to-day living, is a mistake. People who want to assign a huge percent of their income just to their mortgage soon find it difficult to make their monthly payments. That's the origin of the ratios. And lenders also know that unless people have a substantial stake in the success of a venture they are likely to walk away from it in tough times. That's the origin of the down payment. If you can't come up with 20% of what a house costs, you probably should not be trying to own a house. If your parents give you the money, that's okay, although you still could be at risk. But if you try to pull some secret loan deal and pretend the down payment was a gift, that's the first step to losing the house. Or losing your family.
People ought not try to subvert rules that exist fundamentally to protect them--not the bank--from getting in over their heads. But they do it all the time. They think they know better. They think they're smarter than the banks. Mortgage fraud, from little white lies to outright subterfuge about the origin of money in your bank or for your down payment, will come back to bite you. Don't commit mortgage fraud.