Financing in 02139>Question Details

Ma2fam, Home Buyer in Boston, MA

Financing Issues: Lender bait and switch:

Asked by Ma2fam, Boston, MA Fri Mar 2, 2012

I was in the process of buying a three family house, owner occupied and I am a first time buyer. There was money for downpayment (20%), no credit issues everything was fine. Just one day before we were to produce the letter of commitment the mortgage agency came back saying that the investor (big bank) wants 25% down payment and wants to do a field review.

Now I have the money for this and I am still committed to buy the place, but at 25% downpayment I had better loan options when I first applied for the loan. So this bait and switch looks very unseemly to me and I feel trapped with a loan that I would not have gone for initially.
Also asking more money one day before date of commitment with "or else" is really awful.

Now I am stuck with going for a loan with not the best terms or losing money (application fee, appraisal fee) by getting rejected for the loan. ALso are there credit score, credit report consequences with getting rejected for this loan (at 20% down).

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Live and Learn-

If consumers could learn to shop for a mortgage loan officer...not a loan. Situations like yours wouldn't happen. A good loan officer will put you in the best available program. A really good loan officer may even refer you out to another lender that offers a better program for your specific needs.

How soon are you closing?
2 votes Thank Flag Link Fri Mar 2, 2012
If your are looking at a Fannie Mae loan the required down payment on a 3 to 4 unit property is 25% not 20%, this should have come up when you applied for the loan? Did you tell your loan officer you were looking at a 3 unit property or did the 3 units come into play after you applied? It s not bait and switch the lender makes no additional money and is just following the guidelines.
2 votes Thank Flag Link Fri Mar 2, 2012
To be honest, without reading the entire thread, this seems like a case of a lazy loan officer quoting guidelines without checking them.

20% down on a three flat used to be accurate but it hasn't been accurate for Fannie/Freddie in some time.

You can still change lenders if you really want to but consider the down side risks of doing so and any per diem you may be threatened with for missing your closing date (knowing your seller's mentality will help, your agent may be able to provide some insight).

Best of luck to you!
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1 vote Thank Flag Link Mon Mar 5, 2012
@Andrew said it better than most. Every time I see the "shop around" comments concerning mortgage financing I am a little mystified. The best rate in town doesn't mean a thing if the mortgage consultant cannot close the loan (as you have unfortunately found out). As Andrew said, "Shop for a mortgage professional, not a rate!!". I refer clients out to other financial partners and banks all the time when I feel the borrower would be better represented. There are a lot of really, really great mortgage professionals out there...and, I am willing to bet none of us are touting that we have the lowest rate in town.

Hope you situation is resolved soon. Best to you!
1 vote Thank Flag Link Mon Mar 5, 2012
You shouldn't be obligated to the purchase if your financing has changed. If you want to call me I've been in the business for over 10 years, and would love to help.

Chris Triantos 617-785-7506
0 votes Thank Flag Link Tue May 29, 2012
I would contact the MA Department of Banking and report them. They are an effective agency on enforcement.

I think you could even get the lender to pay for the attempted bait and switch. You can also sue them in smalls claims court.
0 votes Thank Flag Link Mon Mar 5, 2012
If you spoke to several different people and they all told you that you needed 25% and you went with the 1 that told you what you wanted to hear, you bare some responsibility as well. If a consumer looks hard enough for an incompetent loan officer, they will usually find one.
0 votes Thank Flag Link Mon Mar 5, 2012
Huge mistake on their part. Sounds like your lender was either a novice or waited until the last minute to process your loan. Either way, sorry to hear about this.
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0 votes Thank Flag Link Mon Mar 5, 2012
Agreed with all below.

My question is- How did disclosures get out like that and no one catch it?
0 votes Thank Flag Link Sat Mar 3, 2012
Everyone is correct. They should have told you from the beginning that 25% down is required. It is a bad mistake. You should still get the best terms possible - there are no other options. Worse things can happen than having to put 5% more down. A smaller mortgage forever is not a bad thing.

Obviously it's too late to start over. Best of luck to you.
0 votes Thank Flag Link Fri Mar 2, 2012
I echo Carl and Andrew's opninions and would be happy to share a suggestion on how to complain about ths if you contact me through my profile.
0 votes Thank Flag Link Fri Mar 2, 2012
Your experience is what gives Loan Officers a bad name and is one of the frustrations those of us who are upfront with customer expectations and have been in the business for years face. Two many LO's will say anything to get you in the door and then surprise you with changes that you should have been made awhere of up front. As for getting denied for this loan you should experience no adverse credit issue's but your are out the cost you have advanced. I would talk with the LO's manager and let them know your frustrations. This is not how we all conduct our business.
0 votes Thank Flag Link Fri Mar 2, 2012
When I shopped for loan, most mortgage agents told the rule is 25% down payment. This company told me 20% downpayment is fine. They offered a slightly higher rate for lower downpayment. Now that I have got the apparaisal and other work done, they are saying 25% will be required. I was upfront about the 3-family issue. Also I could add my wife to the loan and double the income if debt to income is the issue but it is not the issue.

As others have stated, apparently the rule for a conventional mortgage for 3-fam is 25% downpayment. So why trap me with 20%, only to demand 25% later. Now not only do I have to pay a higher downpayment but also at interest rates that were not the best for me. Further by going with this non-existent loan product I pretty much gave up on the option of looking into FHA financing.

Now I would love to walk away, but I am on the hook for the apparisal fee and other expenses aparently, apart from the time and money invested.

So, you see how I am trapped and all those mortgage brokers who were upfront with me lost business to someone who did not even match their terms. The sellers too are losing money ( they evicted tenants paying the highest rent to make room for me).
0 votes Thank Flag Link Fri Mar 2, 2012
What a difficult situation. I wish this was unusual, but the mortgage industry has become difficult. I would suggest this is a question for your attorney. If you go to another lender that will add time and some risk to the seller, which they may or may not be willing to accept.
Best of luck, Nichole Bookwalter
0 votes Thank Flag Link Fri Mar 2, 2012
With FHA you can get in with as little as 3.5% down if you are occupying one of the units.…
0 votes Thank Flag Link Fri Mar 2, 2012
Just doublechecked one of my lender guidelines and they sell to Fannie. Purchase owner occpupied 3-4 family needs 25% down payment. I think you need to find out from your loan officer what changed from when you applied. Also wondering if you were offered 20% down anywhere else. If the answer is no, that could be a red flag.
0 votes Thank Flag Link Fri Mar 2, 2012
Fannie Mae and Freddie Mac guidelines do call for 25% down. I think the loan officer made a mistake up front.

But, you can do an FHA mortgage with less down payment.

As for the field review, the LENDER actually hired a company to do the appraisal. It's unbelievable that they want to reverify the company that they hired!

Good luck.

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0 votes Thank Flag Link Fri Mar 2, 2012

That's exactly why you have a commitment date. What occured that changed the terms you were offered on your good faith estimate? Most often changes like that will occur because of appraised value or credit scores. The other potential factor could be your Debt to Income. The lender could be requireing a higher down payment to bring your ratios into tolerance.
0 votes Thank Flag Link Fri Mar 2, 2012
Hi Ma2fam,

Often there are things that change during the lending process (especially with investment properties) If you can afford the additional money down - then think of it this way, this just means you owe less money on the property and you actually own more of it.
If you are concerned that this is a bait and switch (I'm not sure that this is the correct term) I would ask to have the lender let you know, in writing, why the increase is required.
This could mean that the investors for the loan are not sure of the property and it's holding value.
It could mean that something changed on your credit/debt ratio and the lender would feel more secure with a little more money down. If after they answer your questions you still feel that things aren't right i would advice asking your realtor to speak with them (we often speak a different language and can help translate mortgage terms) or have your real estate attorney look things over. You shouldn't be penalized for delaying closing for a couple of days to make sure that you are still in good lending hands.
the up side is that having to bring more money for the down payment should also mean that you will have a lower monthly payment.
I will say that most likely this is not a con on the part of the lender and this is not something that happens all of the time, but it does happen.
0 votes Thank Flag Link Fri Mar 2, 2012
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