A house is listed with me and my business partner Gary Lohrman. It’s under contract; everything is moving along smoothly, we are past inspection, appraisal, and all the big contingencies. We are just a few days away from closing when the buyer’s agent calls to say that there is a problem. At the last minute, the lender has decided that 20% down is not going to be enough and they will not close the loan unless the buyer comes up with 30% down. Now mind you, these buyers have a pre-approval letter from the lender, have acted in good faith, and provided all documentation that the lender has asked for. They are well qualified with high credit scores and good jobs but without reason or cause, the underwriter decides to change the game at the last minute. Let’s take a look at the bind that everyone now finds himself or herself in:
• The Sellers are just a few days away from selling their home and moving on with their lives. Now they are faced with the possibility of having to put their home back on the market again to do it all over. Not to mention their property has been off the market with no showings for 30 days.
• The buyers have packed up their stuff, are ready to move, have paid for inspections and appraisal, plus additional out of pocket expense. They are also under contract and may be in jeopardy of losing their earnest money.
• The Realtors have done their job and worked hard for the last 30 days or more and are now faced with not getting paid.
The question is, “Why were these people qualified for this loan by the lender with 20% down (by the way 20% down is usually a safe bet and not a high risk loan) just 25 days ago and now a few days before closing, the lender wants 30% down?” The lender is holding everyone hostage with a game called “pay up or you won’t close.” The answer is that the underwriter who signs off on the file sees something they don’t like and they think that an extra 10% percent down will resolve the risk. Truth is, the extra 10% in no way diminishes the risk. This is an underwriter trying to protect his or her hide in the event that the loan defaults.
I wouldn’t be writing about this if it just happened once, but it happened three times, all in a span of 45 days in November and December. It happened on three different properties, with three different lenders and three different buyers/sellers. It could happen to you, so beware. To find if we resolved the issue and if these deals closed, email me at email@example.com
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