FHA Co-signer/borrower rules changed?
So... I was slapped with a mortgage denial from the lender. The whole FHA 203k project is fantastic on paper, with the total purchase price + 203k standard rehab totaling to 565k on a 2 unit to 3 unit (legal) conversion. The mortgage broker last week told me that all the necessary vetting and requirements, such as income verification, W2's, taxes, DTI, etc etc was approved and looked great.
Project scope:
- 2 to 3 unit conversion with an addition added in the back in order to utilize the maximum square footage allowed on the lot. The floor plan schematic equals to 3600 sqft max floor space for an RT-4 zoned lot with 3 units total which is what the self-certified architect confirmed himself and ultimately what the zoning allows for.
- Purchase price = 173k.. The property is in a fantastic neighborhood but is in crap condition, which is what I was looking for to build that sweet equity.
- Construction costs with material + labor + contractor fees, with the final work write up APPROVED and signed off by the 203k consultant = 336k with the 15% contingency, totaling = 406K (plus architect fees, closing costs and permits).
- So, 173K purchase price + 406K construction costs (with all the bells and whistles I wanted) = to about 565K total loan amount.
Here's the kicker:
With my DTI I could not get the loan, I was about 100k shy. So I used my father as a co-signer. Since he owns 3 properties.. his primary residence, a business building, and a summer home which have been all paid off for years now, he virtually has zero debt with about $1MM in total assets and NO MORTGAGE. Also no credit card debt, no car loans, and no other personal debt. Plus, he is a union contractor and is making a fantastic income. Our DTI's together are well below the limit in order to close this deal as far as DTI goes.
Not to mention, the total rental income from the 2 larger units on my property = 4k a month. After I move out in the 1st year, the third garden unit has potential to rent out for around $1500.00 a month. This amounts to $5,500 a month in total rental income with 3 units minus my overhead of $3664.00 a month (Principal + interest + property taxes + home owners insurance + PMI) = to about $1800.00 a month profit minus some minor expenses like garbage, commons area, etc. Oh and need I forget that the after repaired value is looking at around 700 - 750K for the total property. If you seriously doubt these numbers, I suggest you take a look at the Chicago market because these numbers are not made up and the mortgage broker + lender approved it and verified it. I would never get this far if that wasn't the case.
BUT..
When I was told the "Conditional Lender Approval" was coming today, I instead got a call from the mortgage broker with bad news. Apparently, FHA HUD recently changed their rules... and I mean recently recently, that a 'non-occupant co-signer/borrower' now only applies if it's a single family residence. So, in order to fall under FHA guidelines, the co-signer/borrower has to also "live there" along with the primary home owner for the first year if it's a 3 or 4 unit building. but not if it's a single family residence... maybe a 2 unit under the right circumstances.
If this is true, the mortgage broker, the 203K consultant and my attorney never brought this to light and it points to a system where they were not properly informed because had they been, this deal would've been killed in its infancy. In the mortgage brokers defense, they were shocked and could not fathom this "new rule" and thus, no one would waste their time or effort if they knew otherwise.
I cannot find or verify this information on any website, wether it's a .com or .gov site, to be true. This is a crossroads situation and I want to find out if there's any foul-play, misinformation, or downright manipulation at work here by any involved parties.
Everything about this deal makes sense. The contractor documents along with his profile, references and proof of insurance all checked out along with my DTI + my fathers DIT. But the new so called "rule" is totally left field and it seems suspicious that I cannot find this anywhere online adds to the fact…
I wish I could make this story up but I don’t have the ingenuity, nor does my rage, to do so.
What. The. F.....