Is this considered mortgage fraud?

Question

If I take a gift from a friend to cover the entire 20% down payment for an investment property, can I then pay that friend back with a personal loan? Would that be considered mortgage fraud? Can a non-family member even contribute gift funds for a down payment?

Upen Patel · Answer

@Jim Stevenson In addition to what @Chris Mason stated, you are not allowed gift funds for an investment purchase. Even if this was an owner occupied purchase AND it was truly a gift, the gift has to be from an immediate family member. Even cousins are not allowed. So forget about friends.

And Yes, if you getting a "gift" with the intention that it is actually a loan, then it is mortgage fraud.

Chris Mason · Answer

Unsecured borrowed funds cannot be used for down payment or cash to close. If there is an expectation of repayment, it is by definition not a gift.

Andrew Holmes · Answer

@Jim Stevenson

It's going to depend on what kind of loan you are getting. If it is a commercial loan then it's not an issue. If it's a residential loan that may or may not allow it then if you misrepresent to the lender than it is fraud. If you follow the rules no issue.

Commercial loan for sure no issue.  Just send an email to you lender in writing so you have a log of it just in case.

Melvin List · Answer

Yes the gift letter will need to state that "no repayment is due."

Russell Brazil · Answer

@Upen Patel or @Chris Mason will know.

Michael Hayworth · Answer

Why would you not just form an LLC with the friend having a percentage?

Travis Dawson · Answer

gifts have to be from close family and can only cover a percentage of the down payment, I don't believe the full amount is allowed.

However, the banks will only look into 2 months of your bank statements. If you are taking a gift from a friend you just have to wait to purchase a house for at least two months. This is called "seasoning" your money.

Is this considered mortgage fraud?

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