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Occupancy Fraud
Falsely claiming a property will be owner-occupied to obtain better financing terms meant for primary residences.
Definition
Occupancy fraud occurs when a borrower misrepresents their intended use of a property on a loan application — typically claiming they will live in the property when they actually intend to rent it out. This is done to obtain lower interest rates, smaller down payments, and more favorable terms available for primary residences. Occupancy fraud is a federal crime that can result in fines up to $1 million and up to 30 years in prison. Lenders actively monitor for occupancy fraud through address verification, insurance checks, and post-closing audits. DSCR loans eliminate the temptation for occupancy fraud by offering legitimate financing specifically designed for investment properties.
How This Relates to DSCR Loans
DSCR loans exist precisely so investors do not need to commit occupancy fraud. They provide transparent, legal financing for investment properties at rates that reflect their actual use.
Related Terms
Non-QM (Non-Qualified Mortgage)
A mortgage that doesn't meet the Consumer Financial Protection Bureau's qualified mortgage standards.
DSCR (Debt Service Coverage Ratio)
A ratio that measures whether a property's rental income covers its debt payments.
Underwriting
The process by which a lender evaluates the risk of a loan application before approving it.
Interest Rate
The percentage charged by a lender for borrowing money, applied to the outstanding loan balance.
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