Financial incentive to claim primary residence
The main reason a borrower could be motivated to claim a primary residence on a mortgage application is to get a lower interest rate for that home.
Typically, mortgages for a primary residence have lower interest rates and homeowner’s insurance costs, said Keith Gumbinger, vice president of mortgage website HSH.
Mortgage interest rates are generally 0.5% to 1% higher for investment properties than loans for primary homes, according to Bankrate. You also typically pay about 25% more for insurance as a landlord compared to your standard homeowners policy, according to the Insurance Information Institute.
Owner-occupied means “you’re going to live there the majority of the time,” Gumbinger said. But there are limited exceptions, such as for military service, parents providing housing for a disabled adult child or children providing housing for parents, according to Fannie Mae.
If you change primary residences, you need to inform your mortgage lender that the original property is no longer owner-occupied, Gumbinger said.
Tax benefits for your primary residence
There are also federal and state tax benefits for your primary residence, according to Albert Campo, a certified public accountant and president of Campo Financial Group in Manalapan, New Jersey.
For example, when you sell your home and make a profit, there is a capital gains exemption worth up to $250,000 for single filers or $500,000 for married couples filing jointly, as long as you meet certain IRS rules, including owner occupancy for two of the past five years.
For tax purposes, you can only have one primary residence.
When there is more than one home, proving which one is your primary residence is “always based on facts and circumstances,” Campo said. For example, your primary residence is typically where you spend most of your time, where you vote, file your tax returns and have mail sent, he said.
Owner occupancy fraud is ‘difficult to detect’
A 2023 report from the Federal Reserve Bank of Philadelphia found more than 22,000 “fraudulent borrowers” misrepresented their owner-occupancy status out of 584,499 loans originated from 2005 to 2017. The data was based on a subsample from more than 15 million loans originated during this period.
Typically, the fraudulent borrowers took out larger loans and had higher mortgage default rates, the authors found.
However, this type of fraud may be “difficult to detect until long after the mortgage has been originated,” the authors wrote.
In the court of law, this is small ball and very difficult to prove.
Jonathan Kanter
Washington University in St. Louis law professor and former Assistant Attorney General
“There is a difference between the court of law and the court of public opinion,” Jonathan Kanter, Washington University in St. Louis law professor and former Assistant Attorney General told CNBC’s “Squawk Box” last week when asked about Cook. “In the court of law, this is small ball and very difficult to prove.”
“You’d have to establish not only that she filled out the form incorrectly, but she had the specific intent to deceive, to defraud banks, as opposed to just making a mistake,” he said.
During fiscal year 2024, there were 38 mortgage fraud offenders sentenced in the federal system, according to the United States Sentencing Commission. That number is up slightly from 34 offenders in 2023, but down from 426 offenders in 2015. The U.S. Sentencing Commission data does not break out the types of mortgage fraud.
