I'm buying another duplex in PA. I was pre-approved for 5% down and $250,000 loan amount. The bank then said we could do 7.5% down in order to avoid mortgage insurance, which was great to hear. So I put it in an offer and it got accepted. So since the bank said we're good to go and our offer got accepted, I moved forward on the deal. I paid for inspections, an appraisal, and also put down $10,000 in deposits so far.
A couple weeks pass and the loan officer at the bank sent me a good faith estimate showing 15% down, instead of 7.5%, therefore requiring a larger down payment. I asked why this was, and they said it was just a clerical error. Ok, it happens.
I get a revised good faith estimate a few days later. Same 15% down. I ask why it STILL says 15% down. "It's just an estimate and nothing is set in stone; we'll get it figured out", they say. So I trust their word, and I don't worry.
We are now 2 weeks until closing, and underwriting won't budge. They want 15% down to make this deal work for them, or else no deal, even after I was already approved for 7.5%. And I don't have that extra 7.5% to put down. Luckily I'll be able to get my deposit monies back if the deal doesn't go through (since the AOS says 7.5% down), but not the ~$1300 I spent on the appraisal and inspections.
Somewhere down the line, I feel the loan officer and/or the underwriters at the bank made some sort of mistake. I know and understand fully that numbers from a good faith estimate can change, but only by a reasonable amount. Going from 92.5% LTV to 85% LTV is completely unreasonable.
Has anyone every been in a situation like this? Any recommendations? Do I have any recourse for getting that $1300 back if the deal doesn't go through? Sue the bank/loan officer?
P.S. I will be speaking with my lawyer about this to get his opinion, but I'd also like to see what opinions you all have.
Chris I do not know any non owner occupied loans for 2 to 4 units that will let you do 5% down payment.
Mortgage insurance isn't dropped a s a requirement until you are putting at least 20% down.
I do not know of any bank that would do a 95% loan without mortgage insurance. With a default and collection and foreclosure costs they would already be upside down on the loan without insurance to help out.
Now if you were going to LIVE on one of the units and go FHA or conventional than the loan programs and down payment change. You still have mortgage insurance even with the low down payment though. The banks have to hit a DSCR usually of 1.20 to 1.25 to fund a loan. In your case with 5% down it's 1.05 which most banks wouldn't touch unless in some cases for commercial where it's a 100 year old tenant investment grade business like a Walgreens or CVS.
I do not know what recourse you have. Everything you have said regarding this mortgage broker sounds like they do not know what in the heck they are talking about. A good mortgage broker knows all the details even if working for a local bank on what the underwriter will go for or not.
A pre-approval is not a loan commitment. Just because you have a pre-approval doesn't mean you are guaranteed to get a loan.
Jon Holdman, Flying Phoenix LLC
Thanks @Joel Owens , yes it's going to be owner occupied, hence the higher LTV. Small local bank, portfolio loan. Still no PMI at 85% LTV though.
@Jon Holdman - Thanks for your response. I understand this. But I think it's a very unprofessional thing to do on their part. They basically said "Yes you qualify for XYZ", which is why I started investing all sorts of time and money into the deal. Then they said "No, you don't qualify XYZ". Had they told me from the start "No, you don't qualify for XYZ", I wouldn't have wasted my time and money in the deal.
If you deposit was put down base on loan approval you should get it back if it is in writing.if not you want get it back.
Its very frustrating. I've been there with a mortgage broker who promised she could do a loan for me. After months and months of messing around she finally admitted defeat.
Sounds like you're dealing with rookie loan officer who didn't know what he was talking about. Nobody I'm aware of is doing 5% or 7.5% down for investments. Even 15% is a very recent and, as far as I can tell, rare thing. You really need to plan on 20% minimum on investments and be grateful if you don't get pushed into 25 or 30%. Sorry, that's just the environment today.
Jon Holdman, Flying Phoenix LLC
Yeah, perhaps it's a reality check for me. We'll see what happens! I may just have to suck it up use a private lender for the remainder.
Borrowing the remaining portion of the down payment won't work, either. Lenders will ask "is any portion of the down payment borrowed". If you say "yes", they probably won't make the loan. If you say "no" and it is borrowed, its loan fraud. Sorry.
Jon Holdman, Flying Phoenix LLC
Recourse? Learn the lesson that nobody can be trusted.
Getting any money back through legal recourse....no.
Getting any money bank by sitting down with the branch manager....perhaps.
5% down investment property mortgages are not offered.
However, there are options with 10% down if you can get the seller to hold a 2nd lien, basically doing an 75/15/10.
75% LTV 1st mtg with Bank
15% LTV 2nd mtg seller held
10% Down Payment
5% down or Zero down if you have a free and clear property to Cross Collateralize
5% down and Pledged Assets (i.e. CD)
But a clean 5% down investment property loan...it ain't happening!
It is to be owner-occupied, so I don't think they consider that an investment property.
Chris, if you are only going to be out of pocket by 1300 that's good for you. A lawyer is going to cost you more anyhow.
Take the lesson of - whatever is in writing is what the deal is- if you of see something again you will be sure to get it fixed up right away and Don't take someone's word for it.
My advice is look for another loan person or walk away.
I have run into something similar in November, and we were able to quasi-resolve it by really pushing the loan officer. I am a big fan of threatening a BBB Complaint, which seems to create movement at levels above the loan officer, as that can be a huge red flag for higher ups at the main office. If they don't budge, file the complaint, and see what they do. They will definitely never want to do business again, but this is about surviving this deal. This worked for me, so it's worth a shot.
I like that when you are threatening a FDIC lender it might come back to bite you. I think if a landlord reject a tenant they should file a BBB complaint.
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