Real-estate investment loans are sought by lenders, but they are not as safe as a primary residence loan. Lenders believe that most borrowers will do everything they can to save their primary residence. When the property is an investment, it is much easier for a borrower to walk away from the property.

That doesn't mean that a lender won't make a loan to a real-estate investor. It just means the lender will look closer at the loan and mull over its merit before approving.

Nonowner Occupied

Investor loans are often called NOO , which stands for nonowner occupied. The proposed loan will not fund the primary residence of the borrower. In other words, it is a loan for a real-estate investor.

One of the advantages of the NOO loan is that often the loan to value (LTV) is favorable. The LTV is determined by dividing the loan amount by the property's appraised value. For example, a $100,000 loan versus a $150,000 appraised value computes to a LTV of 66.7 percent. Because investors usually purchase below fair market value, the LTV is usually in line. Investors want as high an LTV as they can get — 100 percent is best — because they need no money down to buy the property.

Because there is a higher risk of default for the NOO loan, lenders usually charge a higher interest rate on the borrowed money.

Loan Fraud

To qualify for a loan, unscrupulous borrowers lie on their loan application and provide false information to the lender. The purpose is simple: By providing false information, the borrower is trying to induce the lender to make a loan it would not normally make. When applying for a loan by providing false information, the lying borrower is committing loan fraud.

As the U.S. Department of Housing and Urban Development (HUD) says, “When you apply for a mortgage loan, every piece of information that you submit must be accurate and complete. Lying on a mortgage application is fraud and may result in criminal penalties.”

As an active real-estate investor acquiring foreclosure properties, don't even think about providing a lender with false information. It doesn't make sense to build a business on a criminal footing. Eventually you will suffer the consequences.

It's far better to be straightforward and work through the system. Having honor and integrity in all your business transactions only makes sense. Some real-estate gurus recommend to their students to lie about the use of the property. Of course, they don't use the word “lie,” but they suggest you do not need to tell the lender that the property will be an NOO unit. Never commit loan fraud. It's just not worth it.