Posted by Robin (AZ) on November 14, 2001 at 14:09:08:
I’m no lawyer (only a law student, and therefore cannot give legal advice), but if you tell a lender something that is untrue, that is fraud. You don’t need a law degree to figure that out, only a dictionary. Your common sense tells you that it is a problem, or you wouldn’t have posted. I know plenty of people who have done this, with no consequences-- except that they have to switch lenders all of the time, because they keep defrauding everyone. Not my idea of good business practice.
I don’t know your circumstances, but perhaps you could ask your lender what defines owner-occupied. Ask, “How long do I have to live at the property before I can rent it out, and still qualify for an owner-occupied loan?” I don’t know what they will say. Be prepared to comply, if you ever want to use that lender again. Just my 2 cents,
Legal or Illegal? Advice Please. - Posted by c carter
Posted by c carter on November 14, 2001 at 13:17:37:
I’m a new investor and like many other new investors, I am having a problem with acquiring the initial downpayment (i.e., 10-25%) as a real estate investor. As a result, I would like to know if it is legal or illegal for a investor to purchase a home as if it would be a primary residency and susequently rent the property. This option would be the only way, at this time, for me to afford a property because the downpayment would be less (i.e. 3-10%). I would appreciate any feedback or advice.
I’m not condoning bank fraud, but the standard 1003 application asks if you “intend” to live in the property or not. Theoretically, you could live in the property for the day after the closing and then you could change your intentions. A lender will use common sense looking at this. If you live in a SFD worth $150,000, an underwriter is not going to find it credible that you will be moving into a $45,000 home and renting out your better house. If you do not own any property, I would highly doubt a lender would question or doubt the occupancy intentions of a new purchase.
Since you really dont want a home, you want a rental, keep in mind that the rent payments should pay for the monthly payments, and then some. There are MANY MANY houses out there where people will not only sell it to you at 80% of fair market value but will ALSO hold a second mortgage for the 20% of this “80% FMV” loan you are getting. You just have to ASK for it!!!
See the bank loans 80% of appraisal or asking price on a initiaion loan, whichever is lower. But on a REFI, they loan 80% of appraisal… period…understand?
MANY sellers dont mind holding a second mort. If they are queasy about the 2nd mort, then offer to pay it off (balloon it) with 2-4 years. If you bought it at 80% value, you could theoretically walk out and refi it next month. The bank would loan you 80% of appraisal thus paying off both previous morts.
There’s probably a way you can do your first deal without worrying about legal consequences. If you have to worry about legal versus illegal, you ought to try another approach.
How about a duplex? For the next 12 to 24 months, live thriftly in one half and rent out the other. When you’re ready to buy your next property, you move on, keeping the duplex. Because you didn’t lie,
you may be able to get your next mortgage from the same lender.
I’m not a legal or finance expert. My guess is the answer to your question is “it depends”. If you actually lived in the property awhile before you rented it out, your lender may not care as long as the mortgage payments kept coming.
If you told the lender you were going to use the property as a primary residence but you actually had no intention of ever using it as a primary residence, then that would at the very least be dishonest, if not fraudulent.
Legal or illegal? I don’t know. I do know it’d be hard for me to look someone and the eye and tell them I’ll be living there, when in fact I know I won’t be.