When banks evaluate an application for an investment property, the loan is given an extra dose of due diligence. Banks realize that if a consumer suddenly experiences some financial difficulties and is having trouble making the mortgage payments, it’s the rental properties that will be allowed to go into foreclosure before their primary residence.

That’s why interest rates and down payment requirements are more stringent for rental properties. And that’s also why some borrowers are tempted to check the box “primary residence” instead of an investment property. Not a wise move.

Before the housing debacle that began officially in 2007 it was relatively easy to check the “wrong” box and tell the lender the loan was for a primary home. Yet the housing debacle didn’t start in 2007, it really started several years later when lenders and borrowers alike seemed to approve anything and everything thrown at them regardless of occupancy; the simple mission was to approve the loan then move to the next one in the pile. Lenders today however will in fact go the extra mile making sure the loan is in fact a primary one and not a rental.

The first thing a lender will do is see if there is a current mortgage on an existing property. If so, is the new property bigger or smaller than the one with the lien? Borrowers who are moving up make sense but those that are buying a smaller home not so much. Unless the borrowers are retired and downsizing. If the loan application passes the first smell test, the next one occurs after the loan is closed and funded.

Lenders today hire individuals to literally travel to the recently financed property and find out who lives there. If someone else other than the borrowers answers the door, there will be some serious explaining to do and if the lender does in fact discover they’ve been snookered with a fraudulent loan application, not only will they start foreclosure proceedings but the borrowers can be indicted for loan fraud. Checking the wrong “box” is simply not worth it.