A week away from closing on our first rental house. $79,500 purchase price, 15% down, $67575 loan, and lender is charging an origination fee of $1400 for 30 years fixed at 5% - wife and I are both around 800 credit score with $150k income and $1100 annual payment on our residence. I pushed back hard on origination fee but she wouldn't budge, saying that there is a 5% rate cap on loans this small and she is eating a bunch of cost to give me this rate on a 30-year. Shopped 2 other lenders and they couldn't do any better on fee or rate.
Then today...lender calls and says that her boss got turned down on the loan and is not being allowed to eat the $3000 cost to get under the 5% rate. Says she wants to split the difference and raise our sale price by $1500 to get $1500 cash back at closing to cover it, and they would eat the $1500.
What are my options? I have already signed disclosures at the agreed-upon costs. Are they obligated to close under that arrangement?
I'll never use this lender again, so I'm not super worried about maintaining the relationship, but I do think that switching to another lender now would not yield better results in terms of rate or fee, but would push us to miss our closing date and the seller would likely back out and take my earnest money, as I think they've had other interest.
NO MATTER if you think you will ever do a deal with the lender again, ALWAYS maintain your professionalize. At the end of the day, your reputation is all that you have. That being said, you do not have to be a push over. The way I see it, it is $1,500 and if that is the difference between a good deal and a bad deal, it is already a bad deal. Pursue what ever avenues you have to hold them to their disclosure but ultimately this is just one of many bumps in the road of an investor. The way I always deal with issues like this: once the person your are working with says, "I am sorry, there is nothing more that I can do". I just say, "I get it. You have to go by the rules. Can I please talk to the person with the authority to reverse this decision"? I keep walking up the chain of command until I get what I want or run out of chain!! Always be polite and appreciative of everyone that takes the time to talk to you. Keep your eye on the prize, if this is a deal, get'er done and move on to the next.
Good advice Tom. That's exactly where I'm at right now. I asked my lender if going back to 20% would resolve the issue (hopefully reducing the points required to get me to 5%), and she said no. I asked her for the number of whoever I needed to talk with to make the issue go away, and she gave me her branch manager's number. I thanked her for her help, acknowledged that being the messenger sucks sometimes, and apologized that she got put into the middle of something that wasn't her fault. She was appreciative that I didn't bite her head off, so we'll see how it goes tomorrow.
No, $1600 doesn't make it a bad deal, but I'm tired of increasing the cash outlay. This is our first rental and we really didn't want to be past $77k on the house but went to $79,500 because my wife really liked it, found about $2k in extra repairs that we didn't expect, and now we're out another $1600. So this is the culmination of about $6k in extra total costs above what we really wanted to be at on this deal. Still cash flow, but not as much as we had planned. We will probably back out just out of principle if they can't move on the extra $1600. I'm not going to be treated like that and still do business with them. But I agree that treating the low-level lender poorly isn't really going to get you anywhere either.
Talked to 4 other lenders today, sent them my documentation from my current lender and told them what was going on. Literally every one of them looked it over, called me back, and recommended I refuse to pay the extra and take it to the CFPB for violation of fair lending practices if they do not abide by the costs on the disclosure that we signed.
I talked to our lender again and politely requested that they abide by the disclosure and they refuse, citing that they're losing money. I suggested that it's a violation that I could take to the CFPB and neither of us really wanted to go that route and that I'd try to meet them in the middle if they could be a little flexible, and they refused.
I googled reviews of this company and they're awful. Wish I had checked - just trusted my realtor since this was our first rental purchase - should have known better.
Looking into a HELOC, but not sure how fast I could get cash, and our close date is set for August 5. We have tons of equity in our residence, so I wish I'd known about this option sooner.
Would love to hear any other lender's opinions about the signing of the agreed upon costs.
They can’t do that. The lender is going to have to take on the costs and can only charge what they disclosed.
@Brad Crumpton You haven't mention anywhere what was quoted initially on LE. Is this rate was locked? Yes the good option will be applied for HELOC, ask your lender how soon they can close and talk with seller about circumstances if they are ready to give you some time to close. Your interest rate will be higher in cash out when you will use HELOC to fund this deal. Calculate all your closing cost and see if this deal still make sense for your saving.
I just realized that I never updated this thread with the results. I filed a claim with the CFPB and they gave me back the $500 I spent on the appraisal. I took a 401k loan and paid for the property and did a refi once we had done the rehab. Turned out to be a full BRRRR property once all was said and done - no up-front cash and a property with 30% monthly margin and now it's had all major repairs done and should be low-maintenance.
This was our first property and it has gotten the wife on board with moving forward with REI as an alternative to traditional retirement. We are making an offer on our 2nd property right now. Thanks BP!
As a direct lender, since 2008 I have never seen so many guideline changes in such a short period of time. As much I would like to step in to help you, unfortunately now our DSCR landlord loan needs to have at least 5 rental properties for us to fund the new deals (only during corona season). The good news is, we are still lending on new purchases. Taking your 401k loan, paying for the property and refi after the rehab was a smart move. I am glad you were able to do this before all the guideline changes. We all will need to be ready and think outside of the box to be able to thrive on the next 6 months. Let`s do this!
Well I'm out of the mortgage game right now. We got a HELOC done a few months ago and we'll use that cash to buy this 2nd property if the offer is accepted, then do a refi after the rehab. Hopefully guidelines have loosened in a few months. Fingers crossed...