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Finally, I've been thinking, how do they know if I'm renting the house or not?

By way of example, CA leads the nation in mortgage fraud. In that category, the most prevalent type of fraud is occupancy fraud.

Therefore, lenders hire (literally) thousands of inspectors whose sole job is to detect occupancy fraud, and they have numerous ways to detect this.

"Occupancy" is defined as (1) moving into the property within 30 days of loan closing, and (2) consistently occupying the property for one year.

When you submit a loan application, one of the questions in the "Declarations" section (page 4) of the loan app is, "Do you intend to occupy the property as your primary residence?" If at the time you're engaged in the loan process your intention is to occupy, you would answer "yes."

Prior to loan funding, you'll be offered another opportunity to answer this question via the "final 1003." If at that time it's still your intention to occupy the property as your primary residence, you would again answer "yes."

What happens after that isn't within anyone's capacity to predict--not even yours. Therefore, you can rent out the property without being fraudulent; however, you have an obligation, clearly spelled out in the documents, to notify your lender if that event occurs within the first year of your ownership.

Or the applicant could lie when answering the question on page 4 and suffer the consequences, if any, as a result of an occupancy check. If the applicant is seeking an FHA or conforming loan, mortgage fraud is a felony and so not worth trying to not pay the extra 1.5% fee and higher down payment requirement for an investor loan.

When your closing loan documents are placed before you, there will be a document in it that clearly warns you not to commit mortgage fraud. I can't find a copy online but let's just say the font used to create the document is large.

Here's a white paper about mortgage fraud.

Here are some people who went to jail for occupancy fraud.
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