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bazzwell - that is not illegal or a problem. The key thing in your scenario is that they did buy the home to live in, occupied it with 30 days as stated in the owner occupancy statement and intended to stay there.
FHA is not a trap that will spring shut to crush you if 1, 2 or 20 years late you have a death, divorce, job relocation or other even that makes you move. They will not call the loan due or foreclose as long as you pay.
FHA even allows a rate/term refinance on investment homes (if you currently have an FHA loan on it, obtained it while you were on it as a primary home, are paying on time and only refi the outstanding balance). Its part of the Streamline FHA process, same as if you lived in the home.
The key is when you get an FHA loan it must be to live in the house. Later on down the road you can move out and sell, rent or do whatever you want with it... you pay, you stay. But do not try to use that as an excuse to buy a home, live in it a day and then rent it. FHA will consider that fraud.... but if you have justifiable reasons for moving out like you mentioned in this case it is not fraud and is acceptable.
It's illegal. The people on here saying it isn't, dont realize you can't get an FHA loan on an investment property. That's where the problem lies. The realtor is asking the borrower to purposely lie on a mortgage application
On another note. Please do some research on investing in real estate. It's not as easy as some believe. Contrary to popular belief also, it doesn't take a ton of upfront money. It can be done, just not as easy as some shows make it seem.
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