FHA loan but not actually living there?

Member since 2022 · 10 posts · 0 votes

I'm looking to purchase one of the properties I manage. It's a four unit apartment building. I own two homes, my primary residence and an investment property. So I don't actually need to live here and wouldn't want to live here. All four units are rented until sometime next year. Although I'm sure frowned upon is it possible to get an FHA loan and just stay at my primary house?

0 Reply

86 views

Most Popular Reply

Bill B.

Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes

It’s fraud with a HUGE paper trail and 100 clues.

Do you have homeowners insurance or landlords?

Is your property tax homesteaded?

Are your property taxes sent to a different address?

Are your mortgage statements sent to a different address?

Are you using 4 rents to qualify for the mortgage?

Etc etc etc.

And, when did you get away with it? If 3 years from now they show you proof that you weren’t living there after signing paperwork saying you would, you’re still guilty.

I understand the desire to screw people who are trusting you with their money. But please don’t. This is just another black eye for landlords.

4 Reply

See this reply in the discussion

22 Replies

Jump to latestLatest

Sort by

Greg R.
Investor · Dallas, TX · Member since 2016 · 887 posts · 1k+ votes
4y
The quick answer is that you're taking a risk. FHA loans have occupancy requirements. It's possible for them to call your loan due if they find that you've committed occupancy fraud. I've known people to do this that were never caught. However, there is a chance that they find out you're playing them and call your loan due - in which case you're going to be SOL. I guess it depends on your appetite for risk. Is the low down payment the only reason you're considering FHA?
4 Reply
Joel Case
Rental Property Investor · Ocean Springs, MS · Member since 2022 · 349 posts · 301 votes
4y
It's not frowned upon, it's illegal. @Greg R. is right, you have to figure out your risk tolerance.
3 Reply
Tim Herman
Member since 2018 · 2k+ posts · 1k+ votes
4y
@James Bartlett There can be civil and criminal penalties for mortgage fraud. You can be sentenced up to 30 years and a 1 million dollar fine. Unlikely, but your probably don't want a roommate named Bubba for the next 30 years.
3 Reply
Rick Albert
Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
4y
Let's put it this way. If you go down this route delete this post.
It is mortgage fraud with fine and jail time (I was told 5 years in jail and $10,000 but I wouldn't be surprised if it is higher). Typically a lender wants you to live there for at least a year.
2 Reply
Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
4y
This is mortgage fraud.
[email protected]818-269-7983
LuxePrivate Investments LLC 572 Reviews
Website View Page
3 Reply
Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
4y
It’s fraud with a HUGE paper trail and 100 clues.
Do you have homeowners insurance or landlords?
Is your property tax homesteaded?
Are your property taxes sent to a different address?
Are your mortgage statements sent to a different address?
Are you using 4 rents to qualify for the mortgage?
Etc etc etc.
And, when did you get away with it? If 3 years from now they show you proof that you weren’t living there after signing paperwork saying you would, you’re still guilty.
I understand the desire to screw people who are trusting you with their money. But please don’t. This is just another black eye for landlords.
4 Reply
Greg R.
Investor · Dallas, TX · Member since 2016 · 887 posts · 1k+ votes
4y
Hey guys, we're all in agreement that it's fraud. However, someone who is doing this on a small level (a single loan) AND is still paying the mortgage isn't going to jail.
There's a ton of other mortgage fraud that otherwise good people commit on a reg basis. I lost count of how many lenders told me to draw up a fake lease for one of my properties to boost my DTI. And very reputable lenders, people in the industry 20+ years w/ stellar reputations. We don't need to act like saints and angels and pretend that this kind of stuff doesn't happen all the time.
My question is: Have you seen instances where people who commit occupancy fraud (while keeping the loan current) are going to jail or have had their loan called due?
This is for informational purposes, trust me I have zero interest in getting an FHA loan for a rental or committing any kind of mortgage fraud.
4 Reply
Rick Albert
Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
4y
I think the difference here is many people who put together fake leases end up leasing the property anyways. The issue is timing.
Greg is correct, the odds that a lender is going to do a drive by is slim. Typically it would be high risk if the borrower stops paying and gives the lender a reason to dig more into it.
During the lender's due diligence they are going to dig into the process and see if there is potential fraud there.
0 Reply
Nicholas Coulter
Real Estate Agent · Southern California · Member since 2019 · 681 posts · 281 votes
4y
@James Bartlett Those loans are for owner occupants only. It would be considered mortgage fraud and a bad way to end up in jail...
1 Reply
Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
4y
The bank will never check you
3 Reply
Account Closed
Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
4y
Quote from @Eliott Elias:

The bank will never check you

@Eliott Elias: Best be careful. You could lose your license for encouraging mortgage fraud.
Did you realize that it is my tax dollars at risk for every time a lie is told on a federally backed loan? I consider that to be theft. My Taxes (and yours and everybody's on this post) were Raised To Cover That Risk, because it has been a big problem.

0 Reply
Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
4y
Don’t forget. For the last 15 years rates were dropping. Banks were profiting by collecting higher than market rates by letting these fraudulent mortgages float. At the same time they had collateral that was skyrocketing in vale.
Now, imagine the opposite. As rates rise. They see they are collecting below market rates on fraudulent loans where maybe the collateral is decreasing in value.
I’ve suggested this would be an easy way for banks to avoid laying off experienced workers during the mortgage slow down. Assign them to confirm the lowest rate mortgages were indeed owner occupied. They would probably pay for themselves if they found one per week. And as we discussed you’d narrow the field by 90-95% with a simple mailing address, insurance type and property tax type search.
0 Reply
Paul De Luca
Real Estate Agent · Chicago, IL · Member since 2018 · 1k+ posts · 1k+ votes
4y
@James Bartlett
It's "possible" and people do it, but it's illegal. I don't recommend it.
0 Reply
Matt Bishop
Rental Property Investor · Dallas, TX · Member since 2020 · 161 posts · 88 votes
4y
@James Bartlett, yes if you can get approved for the loan and you make all the mortgage payments. No one will know or care. When you sign the closing documents you may be required to sign a paper that states you "intend" to use this as your primary residence. I've done this with my VA loan more than once. If you default, the government agency backing the loan may contend you never intended to live there, hard to prove, and you may not have all the default protections an owner / occupied loan has. If things go really bad, you may have to cover any shortage to keep the fed quiet.
0 Reply
Jeff Castro
Rental Property Investor · San Diego, CA · Member since 2019 · 61 posts · 27 votes
4y
Don’t do it. I’ve seen over 10 loans called during “quality audit”. One is facing jail time.
0 Reply
Andrew B.
Rockaway, NJ · Member since 2016 · 2k+ posts · 2k+ votes
4y
Using an FHA loan when you have no intention of living there for a year is mortgage fraud. This is a federal crime. The odds of getting caught are extremely low, but you've just made a public post with your full name stating that you are considering mortgage fraud, so you will have no argument way to defend your innocence if you are caught.
0 Reply
Greg R.
Investor · Dallas, TX · Member since 2016 · 887 posts · 1k+ votes
4y
Quote from @Jeff Castro:

Don’t do it. I’ve seen over 10 loans called during “quality audit”. One is facing jail time.
Interesting, thanks Jeff. Out of curiosity were these all FHA?
0 Reply
JD MartinBusiness Member
Moderator
Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
4y
Quote from @Greg R.:

Hey guys, we're all in agreement that it's fraud. However, someone who is doing this on a small level (a single loan) AND is still paying the mortgage isn't going to jail.
There's a ton of other mortgage fraud that otherwise good people commit on a reg basis. I lost count of how many lenders told me to draw up a fake lease for one of my properties to boost my DTI. And very reputable lenders, people in the industry 20+ years w/ stellar reputations. We don't need to act like saints and angels and pretend that this kind of stuff doesn't happen all the time.
My question is: Have you seen instances where people who commit occupancy fraud (while keeping the loan current) are going to jail or have had their loan called due?
This is for informational purposes, trust me I have zero interest in getting an FHA loan for a rental or committing any kind of mortgage fraud.

If a lender told me to make a fake lease to get a loan I would get a different lender.
Podcast Guest on Show #243
Skyline Properties
View Page
1 Reply
Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
4y
Quote from @Account Closed:

Quote from @Eliott Elias:

The bank will never check you

@Eliott Elias: Best be careful. You could lose your license for encouraging mortgage fraud.
Did you realize that it is my tax dollars at risk for every time a lie is told on a federally backed loan? I consider that to be theft. My Taxes (and yours and everybody's on this post) were Raised To Cover That Risk, because it has been a big problem.

Who say's i'm encouraging it?
0 Reply
Account Closed
Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
4y
Quote from @Eliott Elias:

Quote from @Account Closed:

Quote from @Eliott Elias:

The bank will never check you

@Eliott Elias: Best be careful. You could lose your license for encouraging mortgage fraud.
Did you realize that it is my tax dollars at risk for every time a lie is told on a federally backed loan? I consider that to be theft. My Taxes (and yours and everybody's on this post) were Raised To Cover That Risk, because it has been a big problem.
Who say's i'm encouraging it?
Your Comment: "The bank will never check you" is a declarative statement of fact. You know that it is misleading and the possibility exists that the bank, at some point, could actually check. If asked in court if you made that statement would you own up to it and accept the consequences?
Here is a thread that goes into the detail
How do banks verify owner occupancy?

0 Reply
Steve K.
Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
4y
@James Bartlett There are hundreds of threads on here from over the years dealing with this issue that you can research using the magnifying glass at the top right of your screen. Here's a comment I made previously on one of them:

"Plenty of people get busted for mortgage fraud. Granted, it's likely a low percentage compared to those who get away with it, but it is a crime that is enforced. This has been the case ever since the global financial crisis of 2008-2010 which was of course caused in large part by unscrupulous lending practices and mortgage fraud. The FBI, SEC, etc. have increased enforcement of fraudulent activity since then. A quick google search produced this:

https://www.ussc.gov/sites/def...

2020: 65,000 cases reported/investigated, with 4,500 of those resulting in mortgage fraud convictions, of which 87% were sent to prison, with average sentences of 18 months (down from avg. 22 months a few years before). I imagine the loans were all called in these scenarios, so if you're not able to pay off the loan in full that's something to consider. Even if there's a small chance of getting caught, I'm not going to risk 18 months in the clink plus big fines and having my loan called plus ruining my creditworthiness just for a lower rate personally, but I'm not a gambling man."
Here's the link to that thread: https://www.biggerpockets.com/...

It's pretty easy to enforce, they just see if your driver's license, utility bills, property taxes etc. match the address of the property, and if you have a homeowner's insurance policy or a rental policy for the property (you can only have one primary residence and one primary residence insurance policy). There are dedicated positions within mortgage companies to audit loans, and they do check these things. You'll have to sign a bunch of paperwork at closing stating that you intend to live in the property and if you sign those forms and never move in, you've committed mortgage fraud plain and simple.
1 Reply
Diya Shenme
Handyman · Member since 2018 · 31 posts · 7 votes
2y
Mortgage fraud is a financial crime that entrails the falsifying of loan documents, or otherwise trying to illegally profit from the mortgage loan process. The FBI considers fraud to be a material misstatement, misrepresentation or omission in relation to a mortgage loan which is then relied upon by a lender.
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.