What if you say that your mortgage is for a primary residence, but it’s really not?

Primary residence

If you are buying a home and list your mortgage as a primary residence but really plan on using it as an investment property or for another family member, here are some things that you should know.

Why might someone say a mortgage is for a primary residence when it isn’t?

If you get a mortgage for a primary residence, mortgage rates are generally lower and the qualifications are easier. That is because banks consider it less risky to lend to someone who is using the home as a primary residence. The thinking is that there’s more risk to borrower if they don’t pay since they would lose their primary home. The motivation for a borrower to keep their home when they are actually living in it makes them less of a risk in a bank’s eyes, and less risk means lower interest rates and potentially easier qualification requirements.

If a mortgage is for a second home or an investment property, to a bank it seems like an easier thing for the borrower to default on. Therefore, their risk is perceived as higher and interest rates are higher and potentially qualifications can be stricter.

What are the consequences if I say a mortgage is for a primary residence but actually is not?

Technically, lying on a mortgage application is considered to be mortgage fraud. Mortgage fraud can mean financial penalties and even legal action such as legal penalties and depending on the magnitude of it, potential prison time. Scary, right?

If a lender finds out that you’ve lied on a mortgage application, they can make you repay the full balance of the mortgage immediately. If you are unable to repay the balance, then they can start foreclosure proceedings.

In what cases could you say your mortgage is for a primary residence and then not use it as such?

If you intend to use the home as your main home and then circumstances change, then you wouldn’t have committed mortgage fraud since you did not lie on your mortgage application.

Circumstances could include a change in job or situation so that you are unable to occupy the home as a primary residence. The longer you stay in the home before circumstances change, the less likely that it would appear to a mortgage lender that you had committed mortgage fraud. If there is a change of circumstance that makes it obvious why you would not be able to use the residence as a primary residence, then a lender would not have a reason to suspect mortgage fraud.