Residential vs. non-residential mortgage

8 Replies

I recently got pre-qualified (waiting for the pre-approval letter any day now) for a mortgage on a residential property.  The broker asked whether this would be for my residence or investment, and I told him it's an investment.  I have two questions.

(1) How does that effect the underwriting and ultimate mortgage I may obtain?

(2) How legitimate is it to say that I "might" live there?  In other words, at what point does it become shady to say that I might live there?  I am under the impression that "some people" do this in order to obtain better financing.  Right now, I only own one property and I live in it.  While I do not plan on moving to a new property, I theoretically could move into the new one and then rent out my current residence, right?  I doesn't sound right to me, but I am hoping for some interesting feedback.

Maybe my gut is right and I should avoid this because it is seriously problematic.  Maybe my impression that lots of people do say they "might" live there when having no intention on it is not accurate.  Or, perhaps, this barely figures into the underwriting/decision-making at all?

Any and all feedback is appreciated.  Thanks!

Residential means 1-4 units that are dwellings. You are talking about owner occupied versus investment. Owner occupied is going to offer the best rate and terms. But you have to go live there or it is fraud. In terms of the new loan the owner occupied primary status of your old loan is irrelevant. In terms of your old loan you can rent it out as long as you have fulfilled the owner occupancy time requirement, often 6 months or a year.

Matt

Owner occupant loan terms can have a down payment as low as 3% with a Home Ready loan from Fannie. An investment property conventional Fannie loan will typically be 20-25% down and have an interest rate between 0.75 to 1.5% higher.

@Matt Hoyt and @Russell Brazil Thanks for your replies.

Am I incorrect assuming people say residence when they only plan on renting it out?  If I am correct, how definite does one's intent have to be?  For example. if my intention was to live in the new property and then the day after closing I have a change of heart, I do not think that would amount to fraud.  However, if my intention is only half-hearted, would that be considered illegitimate/improper?

Again, this is under the assumption that people actually do this - it may be common practice within the industry, in which case it may be acceptable.  If that is wrong, it seems lousy, even if not actually fraudulent, and I want no part of that.

Stop conspiring to commit mortgage fraud. 

It's much less convoluted to simply murder someone, if your goal is to end up a felon and in prison.

"Had a change of heart the day after closing" is held up as the classic example of clear-cut unambiguous felonious mortgage fraud, when they train us.

It's never happened to one of my people, but other BP members have posted that mortgage loan underwriters have discovered self-incriminating posts, like the OP, via Google, and denied mortgage loans as a result. 

Furthermore, there are lists you can get put on, that you don't get removed from, even after seven years have passed. 

Stop conspiring to commit mortgage fraud. 

@Chris Mason Thanks for your input.  That's basically what I wanted to hear. I just wanted to make sure that it was really that bad.  I'm not a lender or a real estate attorney.

You don't know me, and I understand my question looks incriminating.  But my premise was that it was wrong from the start, notwithstanding stories I've heard to the contrary.  As I wrote above, I told the broker it was for investment purposes.

Hey @Simcha Davidman , Chris Mason pretty much summed it up. It would be tantamount to committing fraud, as it's a material misrepresentation. Depending on whether it is owner-occupied or not, many Lenders will not fund a loan or will not provide a certain rate. If you obtain a loan from a Lender under the pretenses of it being non-owner occupied and thereafter do occupy it as a primary or secondary residence you put yourself at grave risk. During underwriting and at closing, you will be required to make certain representations and warranties, you'll be certifying the occupancy status and purpose of loan proceeds, and at closing you will be executing affidavits to that effect. 

You do not want to subject yourself to penalties and foreclosure. It's best to be clear about your intentions with the Lender from the start. 

Feel free to direct message or contact if you have any questions.

@George Despotopoulos Thanks for your input.  So this all started the end of September or beginning of October, when I was talking with an agent.  I told him that I wanted an investment.  His impression from my financial situation was that obtaining financing for an investment would be more difficult, and he works with a lot of people who did what was discussed above.  I told him that I was not comfortable with that, and have not spoken to him since.  But, I wanted to know if my reserved/conservative stance was warranted, or was I unnecessarily leaving money on the table.  The answer from this thread is clear :)

Thanks again.

@Simcha Davidman You're welcome. You made a good call. You also did the right thing in confiding in this forum. There's a lot of individuals here with years of experience in various areas of the real estate industry.

Agents are great and provide a service for investors and first-time buyers alike, but always trust your own instincts and follow your gut like you've done here. 

Best of luck and feel free to reach out directly if you ever have any questions.

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