What happens if the bank thinks u are useing the loan for one thing and u use it for another thing?

Question

I was wondering what would happen if u went to the bank to get a loan to add on to your house and the bank said they wont give u a loan to add on to your house, but they would give a loan to build a new house. So u take the loan for a new house. But, then u use it on adding on to your old house instead. What going to happen when the bank finds out u didn't build a new house. You Just add on instead?

Answer 1

I work in mortgages. If what your talking about is a construction loan. Most likely your money will be dispersed in stages and the bank will require proof that you house is being built within proper zoning guidelines etc. Failure to perform as agreed could be considered anything from default to fraud depending on how deceptive your actions are.

If what your talking about is just an equity line on your current residence... it is possible that adding an addition to your current home will not add any additional value to the property and would then not be a worthy investment for your bank. In this case, if you continue to pay your mortgage in time, you may escape retribution, but I don't advise it.

Regardless of your situation, if you agree in writing that your intent is one thing and then you do another, it IS fraud and you are putting yourself in both financial and legal jeopardy (from fines to foreclosure to prison). Not to mention the basic moral implications of lying.

Many people get away with mortgage fraud every day, but is it really worth the risk?

Answer 2

If you get a loan from the bank to build a new house, you may qualify for the loan based on a goverment program which guarantees a portion of the loan to the bank as security for providing the loan to you, the lender or the new mortgage may be the collateral for the loan.

If you do not use the loan for the specified purpose as in your loan agreement, the bank could demand full payment of the outstanding balance of the loan. If unable to pay for the loan, and the mortgage was the collateral for the home, they could forclose on your current home that you made the improvements on.

Answer 3

Contrary to common belief, the bank does care (I was in banking for 6 years before having my family), if you agree to take the loan to build a new home, the bank is first in line to put a lien on the title to the house. What that means is that if you don't pay your bills, the bank is first in line to foreclose on your house and sell it in order to get their money back. You get the money when they get the contract to build. If you somehow managed to get the loan without that contract, then you got lucky and I'd say keep your mouth shut.

Should you want to brag and the bank finds out, you've defaulted on the terms and the agreement of the loan (because they have nothing securing the money...i.e.; the house...their interest is being able to recover the money should you default through non-payment) and would then be responsible for paying the loan in full upon demand.

My advice?

Don't do it, it's not worth it. There are a TON of lenders out there that will give you a home equity line of credit or home equity loan (they are two different things) without having to resort to fraud to get what you want to get done.

Good luck.

Answer 4

first, a bank is not going to give you a loan for a new house unless they take out a mortgage on the property along with a promissory note for the debt. the title company would regulate the event so the bank doesnt get scammed. if it's an inexpensive property, maybe an investment property, they may give you an unsecured loan.

following your scenario, if you did not use the proceeds for the purpose of the agreement, you would be in breach of the contract. and all that small print would come into play which wouldnt be good for you (i.e. immediate repayment of the loan, fraud charges, law suit).

on the other hand, if they did not find out and you paid the loan on time and to maturity or balance, then no harm no foul.

Answer 5

Okay I am in the mortgage industry. Don't mess with the Bank, it will ruin your chances for ever getting another loan. Use the money for what it was intended for. If you already made the mistake, contact the bank, better yet contact an attorney and get some advise. That would be your best bet, For a couple of hundred dollars it could save you thousands!

Answer 6

The bank can default on your loan. You're still responsible for the loan but since they aren't a leinholder of the house as they expected to be, you are in violation of the loan agreement.

They can collect the entire amount from you immediately or your credit is shot.

Answer 7

I don't think you could get through closing the loan without proper documentation about the new house you were supposedly building. You would need an appraisal and title search and deed to the land septic test perk test, all for a pretend property. I don't see it working, and if it does you have bigger balls than me, friend

Answer 8

Well, in my opinion, your examples don't mesh...because the bank works differently with regard to real estate loans. A real estate loan has to be secured by real property, so they would need to know up front what address that real property is. On the other hand, if you get a personal loan for something that is unsecured (no real property attached to it) you can use the money for whatever you choose.

Answer 9

That won't work.
Because when you get a home loan from a bank, they will work directly with the closing firm. They will give the money straight to them in accordance to the asking price of the home.
If you get a personal loan for home enhancements, then they give the money straight to you.

Answer 10

I really don't think the bank cares what you do with the money as long as you pay the loan off.