What's the penalty for using VA or FHA loan for non primary residence?

[Tony Zhang]

I'm wondering what will the possible penalty to be if the property we purchased not as our primary residence by using VA or FHA loan after lender found out? Anyone experience have with this?

[Jason Wray]

To avoid an issue just refinance the property and convert to investment if you have at least 85% LTV. If you cannot yet refinance due to LTV or lack of 6 months title seasoning you can explain in detail. FHA & VA allow for a "Change in circumstance" for example you are moving, changing jobs requiring new location, new school, enlisted military, divorce, other life circumstance outside of your control.

As far a penalty due to no intention as using from the start of the application. That can get a little heated depending on the bank/lender. You can also be added to a "List" or people that banks/lenders use to flag all of your future applications similar to a "Fraud Guard".

[Glen Wiley]

It is mortgage fraud, you really don't want to land in court over that. First talk to an attorney. My non-laywer advice is to get that thing refinanced and read the mortgage docs before you close and abide by the terms of the contract.

[Account Closed]

Quote from @Tony Zhang:

I'm wondering what will the possible penalty to be if the property we purchased not as our primary residence by using VA or FHA loan after lender found out? Anyone experience have with this?

It's called mortgage fraud and is a federal felony.  I wouldn't recommend it. There are guidelines of how long you need to live in the property and under what conditions you can move. Those laws are there because we as tax payers are insuring the loan. It is not "funny money".

Just for giggles:

Mortgage fraud is covered under the 2009 FERA (Fraud Enforcement and Recover Act). This Act has highlighted the fines and prison sentences relating to mortgage fraud.

Mortgage fraud laws are divided into two specific categories, which are:

1. Fraud for housing, in which someone submits inaccurate information in order to be able to buy a home under more favorable terms
2. Fraud for profit, in which a real estate professional falsifies information so that they can get more money out of a transaction

"most states also have their own laws in place. If charges are brought, they usually also incur tax fraud and other fraud charges."

[Rebecca Ramos]

Quote from @Jason Wray:

To avoid an issue just refinance the property and convert to investment if you have at least 85% LTV. If you cannot yet refinance due to LTV or lack of 6 months title seasoning you can explain in detail. FHA & VA allow for a "Change in circumstance" for example you are moving, changing jobs requiring new location, new school, enlisted military, divorce, other life circumstance outside of your control.

As far a penalty due to no intention as using from the start of the application. That can get a little heated depending on the bank/lender. You can also be added to a "List" or people that banks/lenders use to flag all of your future applications similar to a "Fraud Guard".

Good advice Jason. It's very risky having an alteria motive when going through these processes. FHA and VA are government agencies and will have access to all of the applicants personal and financial information. I will let all of my clients know about the List you said banks/lenders use to flag future applications when there's a potential for fraud. Good to know there's a way to try to prevent it. thanks.

[Jason Wray]

@Rebecca Ramos - Just wanted to add a buyer does not have to be scared to buy a home and want to move in 12 months. There are some ways to ensure you never get questioned and its fairly simple. When a buyer knows they want to buy and buy again fairly soon they need to target the homes in order.

Bank loopholes which cannot be questioned; Buying smaller home first, then buying bigger home (Sqft/GLA) we review it as growing family, need space for office, dogs etc.. Buying a 2-4 unit first and then wanting to buy and move into a detached SFR makes sense tired of neighbors, want more privacy etc. Buying a modular or mobile home first and then next move into a single family.

Buying a home out of state only having to put 10% down can be used as a short term rental immediately then on the second year you refinance and transition into a investment you only need 85% LTV.

The tough part is when a buyer purchases a single family home and then wants to buy a 2-4 unit and say they want to live in a unit. If the 2-4 unit is inferior and the home they are leaving is superior bigger in sqft/gla it usually gets flagged. It can be done but you need to pay close attention to current home and new home.

[Rebecca Ramos]

@Jason Wray - Sorry for the late response. Thank you for the additional information. 

[Carlos Scarpero]

This is loan fraud. Do not do it. The lender could call the loan due. Your loan officer could also lose his licesnse.

[Russell Brazil]

Baltimore City states attorney just got 3 years of probation and 12 months house arrest for mortgage fraud.