Does a Mortgage Broker Check for Occupancy?

Investment property mortgages carry a higher interest rate.

Investment property mortgages carry a higher interest rate.

A mortgage broker's responsibility to the borrower stops when the loan closes. Under no circumstances does the mortgage broker have to verify that the homeowner moved into a primary residence. However, the lender often follows up and checks to see who actually moves into the house.

Duties

A mortgage broker acts as an intermediary between a consumer and a lender. The broker doesn't fund a loan. Instead, his role is limited to finding the most suitable mortgage program for the borrower. The broker will collect the required supporting documents and submit the completed loan application to the most appropriate lender. If the borrower doesn't qualify for a loan, the mortgage broker assumes the role of a counselor and advises the consumer on ways to improve credit scores and reduce debt.

Occupancy

One of the items on the loan application is whether the financed property is to be a primary residence, secondary residence or investment. A primary residence is statistically the least likely to go into default and therefore has the lowest interest rate. Secondary homes are vacation properties and may have an interest rate that is 0.25 percent or 0.50 percent higher than the rate for a primary home. An investment property may cost the borrower a whole percentage point more in interest. Consequently, borrowers are tempted to lie on the mortgage application and state that an investment property will be their primary home.

Verification

Lenders usually stipulate that homeowners have 30 days after closing to occupy a primary residence. To verify the person moving in is actually the owner, the lender may call the house and ask to speak to the homeowner. A tenant is likely to respond that the owner lives elsewhere. The lender may also drive past the house looking for a rental sign in the yard.

Penalties

If the lender determines the homeowner isn't living in the primary residence during the first year of ownership, the owner will likely suffer some type of penalty. In this case, the lender may increase the interest rate or accelerate the loan payoff and require that the entire balance is due immediately. Lying on a mortgage application is also a federal offense, and the borrower may find himself in court, fighting fraud charges.

About the Author

Pat O'Connor is the broker/owner of The Veritas Real Estate Group in Coral Springs, Fla. She holds a M.A. in psychology from the University of South Carolina. O'Connor has been writing real estate and loan origination textbooks, as well as developing online courses, since 2005. Her latest publication is the kindle ebook, "The SAFE Mortgage Loan Originator National Exam Study Guide."

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