Lying About Primary Residence for a Refinance

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Lying About Primary Residence for a Refinance

Cameron C.
Philadelphia, PA · Member since 2013 · 43 posts · 12 votes

BP,

I have a situation I want to run by you to A) see if I'm doing anything wrong and B) understand if I should've taken action earlier...

January 2017 - I purchased a home in Pittsburgh with a 5% conventional loan as my primary residence

November 2017 - I relocated to Philadelphia to start a new career and had three friends (4BR house) sign a lease that would take me until the next full rental cycle.

I recently inquired about refinancing the loan and I was asked "Is this your primary residence"?  Obviously, it is not.  However, because I only have 3 individuals on the lease I'm wondering if it makes an incredible difference to pass a little white lie in this situation, as I would also like to use this income to qualify for a better refi.

I'm just confused as to why the lender would care about this during a refi?  It is clear that I didn't do anything wrong last year when purchasing, however, on the refi it would be a little bit of a lie to maintain the stance that I still live in the home.

Lastly, I'm curious if I had an obligation to the lender to inform them of my move in November?

Any help would be greatly appreciated!

Cam

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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
8y

Generally there is no issue with buying a house with an OO loan then moving and renting the house with that loan in place. Especially when you have a job related move to a different city.

However, now when you want to refi, telling the lender its owner occupied when its not is not a "little white lie". Its fraud. Interest rates are lower for an OO refi and the allowable LTV is higher. For example, Fannie Mae eligibility matrix says a cash out refi on a primary SFR is 80%. For an investment property its 75%. Will you get caught? Maybe, maybe not. If you do, the consequences will be more severe than the benefit you gained from the lie.

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  • Eric Smith
    Rental Property Investor · Rochester, NH · Member since 2015 · 11 posts · 8 votes
    8y

    A refinance for a primary residence has different terms than a second home or investment property

    1Reply
  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    8y

    Generally there is no issue with buying a house with an OO loan then moving and renting the house with that loan in place. Especially when you have a job related move to a different city.

    However, now when you want to refi, telling the lender its owner occupied when its not is not a "little white lie". Its fraud. Interest rates are lower for an OO refi and the allowable LTV is higher. For example, Fannie Mae eligibility matrix says a cash out refi on a primary SFR is 80%. For an investment property its 75%. Will you get caught? Maybe, maybe not. If you do, the consequences will be more severe than the benefit you gained from the lie.

    10Reply
  • Matt K.
    Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
    8y

    how is this even a serious question lol.

    5Reply
  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    8y

    @Cameron C. So I'm not a lender but I'm pretty sure it's just basic mortgage fraud.  There's a different risk profile attached to an owner-occupied vs. an investor-occupied property.  I know when I was looking at a property for an out-of-state vacation rental that the originator was trying to coax me into saying that it would be owner-occupied.  It wasn't a primary residence question but it was (somehow) related to an investment vs. non-investment property.  The clear insinuation was that if it wasn't an investment and I could qualify without needed projected rental income, that I would get a better mortgage rate.  On the one hand, I was just planning to use it as a vacation rental but if it didn't go well I would have just held for appreciation and/or vacationed there along the way.  But if it did operate well as a vacation rental then that would definitely be the sole purpose.  I wouldn't have rented it out the first day after closing because I would have had to furnish it, etc. so the logic was that I could "change my mind".  

    As in..."oh wow, I just bought this place and after I got done furnishing it I just realized that I might be able to use this as a vacation rental..."  You know, because those thoughts just randomly pop into your mind 30 days after closing.  Obviously, I'm being facetious and they don't.  It's just a way of trying to rationalize the "white lie" because it's hard to factually prove what my intent was when I was filling out the mortgage application.  You'd have to be a mind reader.  Would 99% of people know what I was doing, sure.  Would be it hard to factually prove without subpoenaing emails?  Well..yeah.

    The net result is that I'm sure that if I had gone down a certain route that I would have had a "white lie" (i.e. FRAUD) on my mortgage application...it wouldn't have been right...but I think I'd have had a hard time being caught.  Which is a just plain weird thing to say.  Especially when I as the buyer was being COMPLETELY up front with the mortgage originator about my intentions :-)

    2Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    8y

    Color and size are only modifiers to the base noun -- lie!

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    5Reply
  • Lana Lee
    Philadelphia, PA · Member since 2017 · 364 posts · 109 votes
    8y

    Have you purchased another property in Philadelphia to live in? Are the utility bills for Pittsburg house on your name? 

    0Reply
  • Alexander FelicePro Member
    Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
    8y

    I wonder what other 'little while lies' you've gotten away with!!! LOL

    could you get away with this? maybe, is it worth it? not by a long shot. This is mortgage fraud, I recommend against it.

    Tell them it's an investment property, the terms will be similar but a little worse but at least it avoids committing a felony ;)

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    0Reply
  • Matt K.
    Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
    8y
    Originally posted by @Dave Foster:

    Color and size are only modifiers to the base noun -- lie!

     but but but he only has 3 people on the lease!

    1Reply
  • Cameron C.
    OP
    Philadelphia, PA · Member since 2013 · 43 posts · 12 votes
    8y
    Haha Matt K. Hopefully grad school works out for you bud. To the rest of you, thanks, this is helpful. All in all, I knew this sounded extremely fishy which is why I wanted the additional insight. I was more or less wondering if they simply wouldn’t let me refinance an investment in short and secondly if I had a responsibility to the lender to disclose my relocation in the first place.
    1Reply
  • Matt K.
    Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
    8y
    Originally posted by @Cameron C.:

    Haha Matt K. Hopefully grad school works out for you bud. To the rest of you, thanks, this is helpful.

    All in all, I knew this sounded extremely fishy which is why I wanted the additional insight. I was more or less wondering if they simply wouldn’t let me refinance an investment in short and secondly if I had a responsibility to the lender to disclose my relocation in the first place.

    Thanks, actually though I've already finished. Maybe you can update my profile for me? Good luck on complex problem solving, you've knocked it out the park w/ this one.

    0Reply
  • Matt K.
    Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
    8y
    Originally posted by @Alexander Felice:

    I wonder what other 'little while lies' you've gotten away with!!! LOL

    could you get away with this? maybe, is it worth it? not by a long shot. This is mortgage fraud, I recommend against it.

    Tell them it's an investment property, the terms will be similar but a little worse but at least it avoids committing a felony ;)

     https://www.biggerpockets.com/forums/49/topics/389...

    around the 6th post should answer your question lol

    1Reply
  • Chris Purcell
    Investor · Philadelphia, PA · Member since 2010 · 739 posts · 372 votes
    8y

    @Cameron C.

    Understand that your full name appears when you post in this forum

    That being said, why are you refinancing- what are you trying to do?  Youve had this house for a year with no equity, so pulling cash out doesn’t seem like it’s realistic.  Are you just trying to lower your payment?

    Technically you’re only obligated to live in the house for a year preceding the purchase.  Seems like you may be almost past that anyways 

    1Reply
  • Cara Lonsdale
    Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes
    8y

    It's not a little white lie.  It's called loan fraud.

    It's one thing that you already broke your commitment to occupy the house for an initial 12 month term because of your relocation.  You could argue your INTENT at the initial purchase was to live there at least 12 months, and an opportunity to relocate came your way.

    However, claiming owner occupied when you clearly are not, is loan fraud, plain and simple.

    0Reply
  • Cameron C.
    OP
    Philadelphia, PA · Member since 2013 · 43 posts · 12 votes
    8y
    All, Thanks, already told my loan officer that it is not my primary residence and was able to get terms to bring down the term by only adding $100 to my payment, hence another refi benefit that’s not a cash out. This all reinforced my suspicion and I thank you all for the insight. Very helpful.
    1Reply
  • Chris Purcell
    Investor · Philadelphia, PA · Member since 2010 · 739 posts · 372 votes
    8y
    Originally posted by @Cameron C.:

    All,

    Thanks, already told my loan officer that it is not my primary residence and was able to get terms to bring down the term by only adding $100 to my payment, hence another refi benefit that’s not a cash out.

    This all reinforced my suspicion and I thank you all for the insight. Very helpful.

     Why did you refinance 

    1Reply
  • Joel O'Leary
    Investor · Los Angeles, CA · Member since 2016 · 94 posts · 93 votes
    8y
    Cameron Crossley Glad you proceeded with the truth. Later in life when you’re a multi-millionaire, you’ll hold your head up high and be proud you built it all the right way.
    4Reply
  • Casity Kao
    Realtor · Grand Rapids, MI · Member since 2016 · 174 posts · 122 votes
    8y

    @Cameron C.  If you are in this game for the long haul, little white lies, just become bigger lies.  Just tell your lender the situation, and if they don't refinance it then find somebody else that would.  There is going to be different terms but it also sounds like you do not have a landlords policy on your home and you should because insurance company can state you mislead them on the type of coverage you needed.  I can appreciate the honesty, but why not get ahead by working harder instead of cutting corners.  I think fraud is a harsh word but if you look at the definition of the word, that is exactly what it is.  Look at this as a chance to find a good investor friendly lender and you may even find a lender that does it with the same or better terms

    0Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    8y

    @Cameron C., It's time to show a little love to you.  Kudos for putting yourself out there.  And a message to all in BP nation.  If Cameron is willing to ask it out loud there's a ton who are asking the same thing quietly.  And it's not just the client defrauding the poor lenders and banks.

    In the last correction the active fraud was also on the part of the lenders and banks encouraging such behavior so they could make loans.  

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    6Reply
  • Anthony Angotti
    Real Estate Agent · Pittsburgh, PA · Member since 2015 · 1k+ posts · 846 votes
    8y

    @Cameron C. agree that you shouldn't lie on this at all. 

    Getting relocated and keeping the financing in place is no problem. If you want to refi then just thell them the accurate use and take those terms. 

    1Reply
  • Cameron Novak
    Corona, CA · Member since 2017 · 99 posts · 42 votes
    8y
    If it is NOT your primary residence, it's NOT a "little white lie". I think you're little white lying to yourself.
    0Reply
  • Max T.
    Investor · Philadelphia, PA · Member since 2015 · 3k+ posts · 3k+ votes
    8y
    Why do you want to refi? You bought it recently? Did you get a really good deal, or increase value thru renovation? If not you may end up losing money in the loan fees and other closing costs.
    0Reply
  • Arthur Voskanyan
    La Jolla, CA · Member since 2017 · 96 posts · 11 votes
    8y
    Your only way to prove what is your primary residence is if you are ‘occupying’ the residence, since you are not but willing to lie for a better refinance terms, you can prove it’s your primary by having most of your documents, mail, etc, actually all to be delivered to your primary residence. I just recently dealt with this issue, but for a different reasons, business generating rental income, to avoid capital gains, but it doesn’t matter they can’t find out, unless they send someone to audit you, very unlikely. So there is really no other proof to prove that you live somewhere else. Arthur.
    2Reply
  • Chris Purcell
    Investor · Philadelphia, PA · Member since 2010 · 739 posts · 372 votes
    8y
    Originally posted by @Max T.:

    Why do you want to refi?

    You bought it recently? Did you get a really good deal, or increase value thru renovation?

    If not you may end up losing money in the loan fees and other closing costs.

    I’ve asked twice and no answer

    I’m truly curious because it makes no sense

    0Reply
  • Arthur Voskanyan
    La Jolla, CA · Member since 2017 · 96 posts · 11 votes
    8y
    People are so blind; These 1% are screwing you letting you live on Percent, a corrupt capitalism system, while everyone is afraid to play around the rules a little. Those tall buildings they are building, skyscrapers, they got those by your ‘percent’ you folks pay, they are illegal frauds, so when you play a little dirty, people yell, “loan fraud” funny Arthur
    1Reply
  • Peter Dunne
    Real Estate Agent · Philadelphia, PA · Member since 2014 · 51 posts · 36 votes
    8y

    Don't do it!!!! Just keep the original mortgage in place (If that is allowable given your change in life circumstances).

    Real estate is a long-term business and your reputation is your most valuable asset. Short-term gains are not worth it in my opinion.

    1Reply
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