2nd Home Mortgage & Occupancy Fraud?

Question

Good Morning Everyone!

New guy here. So I was hoping to get some clarity as to getting a 2nd home mortgage and what constitutes as occupancy fraud. I have noticed that many investors, even some who run Biggerpockets, claim that you can get a 2nd home mortgage with 10% down, can use the property a little yourself, and convert the property to an Airbnb investment. This sounds great at first. However, I am hearing that this would constitute as occupancy fraud. My mortgage guy told me as such and other articles indicate the same. Am I possibly missing something here? I am unsure if people are able to pull this off simply by "using" the home for a short period of time. Also, I have heard that you cannot rent a 2nd home, while other claim you can if the lender allows it?

Because I am new, and obviously want to abide by the law, I was hoping someone could shed some light on this for me, especially if they are in the mortgage business, or, you are someone who took out a 2nd home mortgage, converted the property to an Airbnb, and it worked for you. Thanks so much for all of your time! I am sure if anyone can answer this, it would be very helpful to the community.

- Adam

Sylvia H. · Answer

The rule of thumb is 1 year. You must occupy the residence for one year. After one year if you plan to move to another property you are free to do so however there has to be a good reason for the move. i.e. larger home, closer to work, single family purchase vs multi. You can't tell a lender you are moving from a single family home to a multi family home in the same town or even the next town because the underwriter will feel that you are not going to occupy the home and just want to get preferred financing.  The penalty for mortgage occupancy fraud is severe. It's a federal offense. One guy got a year in jail and a 537k fine. Don't do it. It's not worth it.   A mortgage broker

Sylvia H. · Answer

If you plan to rent your home as an Air bnb.  Your insurance company may not allow it because you are now using the property for a business not as a residence. The risk of fire, liability etc goes up with every new person who stays there. If you had a loss and did not disclose to the insurance company that you were using this as a business rental they could refuse to pay your claim should you have a loss.

If you obtained a mortgage and told the lender you are going to owner occupy the home you and you alone must occupy it for at least a year in order for it not to be considered occupancy fraud. Lenders have ways of finding out where you live without having to knock on your door. When in doubt, don't.

Mortgage Broker

Josef Hardi · Answer

Hi Adam,

I would be following this thread as well, curious what insights people will share.

Just a bit of experience from my last refi. I refi'd  and cashed out my primary residential property back in January 2022. I spoke with the same lender about the possibility of purchasing another primary home residence, and he said he can help after 6 months. Which I think is a fairly short period of time considering basically I am switching a primary residence.

In short, perhaps after a period of time, you can claim that the primary residence is no longer a fit for you and legally you can move on to another property while renting out this primary residence.

Hope that helps!