What Is Occupancy Fraud?
There are three basic types of occupancy status when applying for a residential mortage loan. Owner occupied mortgage loans, second homes/vacation homes mortgage loans, and investment property mortgage loans. Owner occupied resident mortgage loans offer the best terms and rates and the least amount of down payment. Second homes/vacation home mortgage loans require a minimum of 10% down payment and can only be a conventional mortgage loan. Investment property mortgage loans require a minimum of 20% down payments and mortgage rates are normally much higher than owner occupied or vacation homes/second homes mortgage loans.
Misrepresenting Occupancy Intentions
Mortgage loan borrowers who misrepresent themselves on their intended purpose on the use of the subject property they are seeking mortgage financing, they are committing occupancy fraud. For example, if you intend on renting a home but claim that it will be owner occupied on your mortgage application, you are committing occupancy fraud, which is extremely serious and a felony. Mortgage companies and the mortgage lending industry sets general standards and lending guidelines and mandates on risk factors on owner occupied mortgage loans, second homes/vacation homes mortgage loans, and investment home loans. Investment properties tend to have a higher risk factor than owner occupied homes.
Owner Occupied Mortgage Loans
Statistics prove that residential mortgage loans that are owner occupied have the least factor and the least likelihood that it will go into default since it is the mortgage loan borrowers primary residence. The analogy is when tough times hit the mortgage loan borrower on his principal place of residence, they are least likely to default and will do whatever means necessary to make timely mortgage payments. The person who owns a rental home is more likely to bail on their rental home than they would on their primary residence or second/vacation home. That is why mortgage rates on their primary owner occupied homes and second/vacation homes are judged less riskier and mortgage rates are lower as well as less down payment is required than investment rental homes.
Riskier Mortgage Loans Means Higher Mortgage Rates And More Down Payment
Due to the risk factor on investment homes, mortgage rates are normally higher and the mortgage lender will require a higher down payment for investment rental home mortgage loans. Minimum down payment requirements are 20% and some mortgage lenders require 25% down payment or more on investment home mortgage loans. Primary residence homes via FHA loans only require 3.5% down payment and 5% down payment for conventional mortgage loans. Second homes and vacation homes require 10% down payment. Since the majority of home buyers want the lowest possible rates and the lowest down payment when purchasing a home, there are some home purchasers that will try to say that they are purchasing and applying for a owner occupied primary residence when in fact they have no intention in living there.
Owner Occupied Principal Residence Mortgage Loans
When a mortgage loan borrower signs the mortgage application, he or she will sign a sworn statement on the purpose of the mortgage loan, whether it is a primary residence, second/vacation home, or investment home loan. If the borrower never has the intention of occupying the subject property and is stating that the property will be a primary residence but his or her intention is to use it as a rental home or is buying it for a relative, then they might be committing occupancy fraud and although it may seem like it is a little thing, it is not. Occupancy fraud is a form of mortgage fraud and it is considered a federal crime. If the mortgage loan borrower gets caught, they can be investigated and prosecuted. This will be the worst case scenario. The mortgage lender might call the loan and give you time to pay off the loan in 90 days in other instances. It is really not worth jeapardizing lying about the occupancy status when applying for an investment property and stating it as an owner occupied property when in fact it is not.
Occupancy Requirements For Owner Occupant Homes
All owner occupied properties need to be occupied within 60 days of closing the mortgage loan and the mortgage loan borrower is required to live there for a period of at least a year unless the mortgage loan borrower has a job transfer or a special extenuating circumstances where they need to let the mortgage lender know.