Mortgage about to be denied after approval. Is mortgage broker acting correctly?
My husband and I are in the process of purchasing our first home. Our mortgage broker found a lender that pre-approved us for a mortgage, but once we made an offer on a house the appraisal came back too low, so eventually the mortgage was denied. The mortgage broker said that her own company would finance the loan and then they would sell the loan to a lender. So a new appraisal was ordered, that came back in the range we were expecting, and after several days she said our mortgage had been approved. Now, one week before the close of escrow, she calls us to say that the lender they’re selling the mortgage to has added an extra contingency. They don’t like the fact that a large proportion of the cash reserves my husband and I will have after paying the downpayment will be in our 401ks. They say that they want those reserves to be liquid. The mortgage broker is trying to get them to remove this contingency but hasn’t succeeded after 4 days, so we’re close to having the whole deal fall apart, after investing lost of time and money (we paid for all the inspections and the two appraisals). My question is, shouldn’t the mortgage lender be looking for a different lender? Or is it too late into the process for that? Any opinion on this is appreciated.
saletstone
in Mortgage 11 years ago
9
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9 replies
vthatcher | 11 years ago
If you haven’t lost the house yet Call me. The reserve requirement is most likely a Fannie or Freddie guideline and they should have known that. If the deal can be saved, I will help you save it and we should be able to you the appraisal you had done. Vanessa Thatcher Senior Loan Officer NMLS# 41404
gatesandbedford | 11 years ago
Had a similar situation (in our case we were told at the last minute that only 60% of IRA could be used towards reserves). Since we had space in our debt to income ratio, the bank recommended we take out cash advances on our credit cards to show cash in the bank. We did, the loan closed, I paid the cash advances back and that was that. I was out some fees, but at least the loan closed (I still don’t understand how that was even remotely acceptable, but I’m not complaining).
resident2 | 11 years ago
These situations are always frustrating and yes, your mortgage Broker/Banker should know all the underwriting criteria before they steer your file one way or the other. But that said in this market Banks change their underwriting requirements without notice. I am assuming you are using your savings for the down payment, closing costs etc.? You can use your share of your 401K for the down payment. (That is your contributions, not your employers) You are not “cashing out” your 401K, you are investing it in your primary residence without tax penalty. Then you keep your cash savings liquid. When buying a house, you need cash reserves to get settled into your new house. You have five years to put your money back into your 401K account, or if you sell your house sooner, it needs to go back upon the sale. Your 401K contributions is your money, and it is allowed to use it for the purchase of a primary residence without penalty. And probably a better return on your money than where it is currently!
est | 11 years ago
Another option, though more difficult for some people, is to put an amount of money in your account until you close. Borrow from a family member or a friend and park it — don’t spend it, then return the sum when everything is settled. We did it because we had a similar issue just before closing. And I understand that not everyone has access to someone who can do them that kind of favor. Do not liquidate your 401k. In our case it showcased $30K.
anonCH | 11 years ago
And by the way – Adam Roberts is a great m. broker – we have used him on a pretty complicated refi. He can surely help you out. Indeed beware of lenders tied to the broker. A friend of mine also had a good deal of trouble when trying to go that route as in now tied up in litigation….
mortgagepro | 11 years ago
salestone, are you sure the lender wants you to liquidate your 401k or simply provide evidence of the terms describing how you can access your 401k funds if ever necessary? -Adam Roberts South Shore Mortgage NMLS#1310
cate | 11 years ago
I don’t know what is going on there, but this could be a bait and switch. It’s not ideal to go through a broker-lender because there is a conflict of interest there. Mortgage brokers have more transparent disclosure requirements, and you will know how much you are paying them. (Though admittedly if appraisal is an issue, as it can be when values are rising rapidly ahead of recorded sales, a broker-lender is motivated to find local people who will give a high appraisal — though you might pay more in fees and such at the last minute.) Another option is to go through a local credit union.
mortgagepro | 11 years ago
saletstone, I am sorry to hear your scenario. Under no circumstances should you be told what you are being told within such timeframes. Underwriting guidelines vary but they are all very straightforward and as long as the broker is experienced and thoroughly educated with the underwriting guidelines they should know to direct each specific loan accordingly. Of course a lower than anticipated appraised value can throw a roadblock in one direction. You were eventually told your loan had been approved and hopefully you were provided a copy of that approval so you can see the outstanding conditions needed to close. Especially on multi-family properties reserves are an underwriting criteria. Most of the time retirement are fully acceptable as reserves (where a percentage of the vested value will be utilized). I am not sure of your liquidity outside of reserves, nor the specific underwriting conditions you are working with, but this should be made crystal clear to you. Liquidating a 401k does not sound right. Does the lender guidelines require a specific amount of liquid reserves (2, 6 or 12 months)? If so, how short are you? These are the things that the broker should know and address up front. Feel free to contact me to discuss any of your specifics. -Adam Roberts South Shore Mortgage NMLS#1310
anonCH | 11 years ago
We had a somewhat similar situation. Due to the fast rise in prices, the appraisals don’t conform with current market trends. In our case, the condition of the house was a complicating factor. We ended up getting 3 appraisals before we finally closed. And then the day before closing, the bank (no 3) that said they would finance the loan, for some reason still not clear – decided to lower their financing at closing. Neither our lawyer nor mortgage broker seems to understand what was going on, but we all wanted the deal done, so we held our breath and jumped. And finally we we have the house, but with less cash than expected for reno, unfortunately. Try Quontic Bank in Queens. The underwriting process was not so linear (to put it nicely), but they managed to close on a house that 2 other banks wouldn’t touch. Good luck, and keep fighting for your house!