203k Loan Officer misrepresentation, need help!

49 Replies

I am chin deep in a 203k and days from closing but my brokerage company has screwed me good. Please continue reading to get the whole picture...

Ive been working with a loan officer for months now trying to close on a property that has been completely set up for a 203k. According to FHA, i need to contribute 3.5% of the total cost. My loan officer has led me to believe that ANY money that i put towards the loan will be factored into my 3.5%...this would include things such as $400 needed for the HUD write up (had to pay this twice due to the first property not working out), $1000 EMD, $450 appraisal...etc. WELL this loan officer got fired the day before closing (which has already been delayed multiple times for things within the LO's control).

I am now working with a different loan officer to pick up the pieces of my loan and hopefully close monday. He is telling me now that all the money that i have contributed (minus my EMD) will not be contributed to my 3.5%

If i was led to believe i would only need X amount of money throughout the duration of my loan process, to bring to closing....and now a day before i close im told i need to bring a lot more...what are my rights? I feel like they misrepresented my loan. 

It's hard to believe anyone who has seen at least one processed loan would think, or say this. Your down payment (3.5%) is just that....a cash down payment. All the other fees are your closing costs on top of that......application fee, appraisal, survey, MIP up front costs, points, prepaid 15 months of insurance and property taxes, etc. ....and are totally unrelated to your down payment. Theses are generally another5-6%. As

@Greg H. said, your GFE should have made this clear, if nothing else did.

I also got started with my local down payment assistance program and was qualified for $5000. I had to take a short class in order to finalize the assistance....BUT my loan officer told me that she would give me the $5000 credit as a 'house warming gift' so i wouldnt have to deal with the program as she said they were difficult to deal with. I have a feeling this $5000 credit is out the window now...

@Kyle Gregg

First off your loan officer cannot give you a $5000 kickback.  That is called mortgage fraud and could get you BOTH in legal trouble as you will sign documents at closing stating that you are not receiving any kickbacks

Secondly, the loan officer isn't making $5000 off your loan so that sounds pretty far fetched

When you did your loan application you received and signed a Good Faith Estimate from your lender.  What does it list as your down payment and cash to close ?

@Greg H.

Yeah i have no idea how that $5000 credit would be applied. I kept asking her about it and where it would show up on my loan. She dodged the question but before i got word that she was fired, she mentioned that it would show up on my HUD as a $5000 lender credit.

My last GFE states that the estimated settlement charges would be $15k...which is A HUGE difference than the $3000 she told me i would need to close. I kept signing documents since she kept telling me this $3000 figure i would need to close. 

Man im not feeling good about this...

Originally posted by @Kyle Gregg :

I also got started with my local down payment assistance program and was qualified for $5000. I had to take a short class in order to finalize the assistance....BUT my loan officer told me that she would give me the $5000 credit as a 'house warming gift' so i wouldnt have to deal with the program as she said they were difficult to deal with. I have a feeling this $5000 credit is out the window now...

 By giving you a 5000 lender credit it would be you paying for it one way or another either by getting the funds via a higher rate (to generate the credit to give you) or by not taking the credit and you paying your own 5000 for closing/down payment/etc.  so in effect that promise of paying your 5000 is either another loan program which requires less down payment or the lender may be increasing the rate to generate this credit for you which in effect is you who will be paying the higher rate. 

Originally posted by @Kyle Gregg :

@Greg H.

I was under the impression, from what my loan officer said, that a lot of these settlement charges were going to be rolled into the loan. 

On FHA 203k loans the EMD and other deposited funds (This does not include appraisal, HUD consultant fees for 203 rehab program, and other site inspection, etc) will go against the 3.5% min down payment.

The 3.5% on FHA 203k is a bit different than regular 3.5% down FHA programs because its off the entire "project cost."

Example: 

If said home is 250k but rehab is 35k (including reserves, rehab, etc) then your total project cost is 285,000 and your EMD and other deposited funds would go against the required 3.5% down of the 285,000 amount. Its not 3.5% of the acquisition price but rather 3.5% of the lesser of the full project cost or appraisal value (key).

So if you deposited 2500 and your 3.5% of 285,000 is 9,975 then you will need to bring in:

9975 - 2500 = 7475 + closing costs, prepaid tax/insurance/interest which is probably another 5200-6000 dollars or about 13,475 as a general estimate. Obviously each state, county, and city may vary on closing costs since each area is different but this is a general figure.

@Albert Bui

 thanks for the clarification. unfortunately my LO told me the exact opposite. 

one question, can a loan officer personally raise the rate of the loan? My loan was increased from 4.25% to 4.5% without much explanation other than 'market fluctuation'. 

she stated that my rate will only lock once my appraisal has been complete. 

Originally posted by @Kyle Gregg :

@Greg H.

Yeah i have no idea how that $5000 credit would be applied. I kept asking her about it and where it would show up on my loan. She dodged the question but before i got word that she was fired, she mentioned that it would show up on my HUD as a $5000 lender credit.

My last GFE states that the estimated settlement charges would be $15k...which is A HUGE difference than the $3000 she told me i would need to close. I kept signing documents since she kept telling me this $3000 figure i would need to close. 

Man im not feeling good about this...

 A lot of times the misunderstanding is from either ignorance from the loan officer or from in experience from the borrowers point of view because sometimes the loan officer may be setting up the right expectations but the knowledge needed to interpret the expectations may not be available so there is more hand holding that is needed for first time buyers. This is atleast my experience.

More experienced investors go through the process much quicker connecting A, B, and C together however everyone had to start from square 1 at least initially.

I am not sure who is at fault here but it seems there is clearly some misunderstanding.

Originally posted by @Kyle Gregg :

@Albert Bui

 thanks for the clarification. unfortunately my LO told me the exact opposite. 

one question, can a loan officer personally raise the rate of the loan? My loan was increased from 4.25% to 4.5% without much explanation other than 'market fluctuation'. 

she stated that my rate will only lock once my appraisal has been complete. 

 Technically the loan officer can raise your rate yes. Whether the borrower will be happy with that depends on the expectations setup and whether the LO has the borrowers "buy in," on raising the rate.

In the LO's defense, rates did rise quite a bit the last 2-3 weeks. Its only now easing a little the last 2-4 business days.

the rate may have been raised to keep your lender credit of 5,000 available because 4.50% on FHA is way over market so I assume there is about 2-3 Points in there in terms of spread.

@Albert Bui

Any suggestions on what i should do? I am speaking with my new loan officer tomorrow to discuss money aspects as my loan cleared friday. I feel taken advantage of and dont want to pay more than i wast told i would need. 

Sounds like your original LO was in the wrong...there's not much the new LO can do for you in terms of the cost of the loan. You have to pay the 3.5% down payment along with the expenses of obtaining the loan. The Good Faith Estimate (GFE) will tell your the cost of your loan. 

Down payment + closing cost = Mortgage Note

Good Luck

By the way if you obtain your own homeowners insurance for the property it's significantly cheaper. Shop around for homeowners insurance don't let the mortgage company provide it, it will cost you a lot more. 

@Sergio Garcia

 - unless the amount required is drastically different than the GFE there is not much you can do if you want this house.  The GFE outlines your costs of the loan and it is required to be presented to you so that you understand the costs of the loan.  The letter would have been sent to your address outside of the conversation with your LO with a disclaimer as to the costs of borrowing money

i do have a question if its a 203K the repairs are in it with the total can  you reduce the scope of what you want repaired to get the house and reduce the amount of the funds for the job that is need.We do alot o 203K jobs and once we had to reduce our scope for the owne to get the house. We went from a 140K renovation to 100K for the owner to get the home.

It sure sounds like a sticky situation. I doubt that you can do much about it since they are the ones holding the funds. If I was in this situation I would just re-asses the deal and make sure it was still valuable like a new deal since you are working with the correct and more knowledgeable loan officer. If I saw that the deal kept me in the green I would find the funds to cover the difference. If its not valuable its one to let go. 

@Travis Meils

I agree, i think the loan terms and interest rate is out of the question. The big issue right now if cash to bring to closing. I just spoke with the LO and he has been honest with me, saying that ive been completely shafted by the other LO. Things such as a $6500 gift from 'mom and dad' on the MD Loan Commitment that i had no knowledge of...

Makes me never want to trust anyone trying to sell me money. sucks. 

Use this as a learning experience. A good rule of thumb is that if there is any discrepancy between a written document that you have signed and someone's verbal representation the signed, written document will rule.

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