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Occupancy fraud

I wanted to do a video about occupancy fraud, because it’s the number one fraud in the mortgage industry.

What is occupancy fraud?

This means people will say that they’re going to live in a home so they can get the primary residence interest rate, which is much lower than the investment property interest rate. But really their intention is to rent it out. Also, on a primary residence, you can get that loan with a much smaller downpayment. Sometimes as little as 5% down. Whereas on a rental property, you need 20% down or, or more.

It is fraud, and it is a big deal

So people will, shocker, lie. And that’s a fraud, and that’s a big deal. This is what underwriting is for. Our underwriters, everybody’s underwriters are looking for any kind of fraud. And it’s enough that it’s the number one fraud in the industry. It’s something that it’s always looked for.

An example

If somebody comes to me and they have a $1 million home. And they’re going to buy a $500,000 condo. Well, you’re not going to leave your $1 million beautiful detached home for a $500,000 condo. You’re going to rent it out. I’ve had people come to me and say, “I’m getting divorced. Party number one is going to stay in the $1 million home. I’m moving to this little condo. It’s all I can afford after child support and alimony.” Okay, well, we’ll have to document all that. But yeah, that might make sense.

But I’ve had people say, living in a $1 million home in a beautiful suburb. And then they’re going to buy a $400,000 condo in the city, which is nowhere near their work. It just makes no sense. It’s just not logically plausible.

Another example

I’ve had people who say, “I live in a $600,000 home now, but I’m going to move into another $600,000 home right down the street. I just like it better.” No, you’re going to rent it. You want a rental property that’s close by, and you’ve only been in your current home for three months.

You’re trying to compile a rental empire with 5% down owner-occupied loans. It’s just not going to work. Now, if it’s truthful and it’s logical and it can be documented, that’s a different story.

Just don’t commit occupancy fraud. It’s a big deal. And even if they catch you after the fact, if you’ve gone to closing and you get away with something. And somebody finds out somehow, in their own ways, that you are not living in the place. They’ll call the note due. They’re legally allowed to force you to pay the loan back. All that does is then forces you to go get an investment property loan and take out the loan that you should have never gotten in the first place, with the higher interest rate, investment property loan.

So do it right. Do it honestly. Buy rental property, of course, but don’t commit occupancy fraud. Chances are the underwriter’s gonna find out anyway. Hope that helps.

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