Worried about house purchase falling through
March 26, 2010 6:09 PM   Subscribe

(Should-I-be-worried filter) Spouse & I are buying a house in another city. The closing is on Wednesday (3 business days from now). Realty paperwork & mortgage process have all gone great, no hitches. Now, at 4:30 pm on a Friday afternoon, the Commitment Letter from our bank arrived but has a blurb asking both my spouse & I to provide letters from our employer certifying that we'll both be keeping our jobs, working from home in the new city. This was never part of the equation.

To be clear, spouse WILL be working from home, keeping his job in the new town. I will not. Nowhere in any of the financing/mortgage process was it ever implied by us, or required by our bank, or even mentioned by our mortgage lender, that we'd both be doing this. I've given my notice from my job and my last day is next Friday (2 days after closing).

All loan paperwork has already been filed/accepted by the bank; they've done our income & asset verifications & all financing background work. They have approved us and locked in our rate. Everything is nearly finalized. Per the bank's requirements we've already paid for 3 months property taxes on the new house, paid for first year's home insurance, the $600 loan origination fee, $500 house appraisal, and other misc. fees which all amount to several thousand dollars. Now, in the commitment letter under Conditions of Your Commitment is this statement: "This commitment is subject to....approval of the following items prior to the closing of your loan,"-- one of the items being, "Verification from employer that borrowers are going to be able to work from home post relocation to (new city)." This has us in a bit of a panic.

Is this a potential deal breaker? Is this even normal? We didn't have to do this when we bought our last house. We never told the bank anything that could possibly lead them to believe I was also "working from home." Obviously, it's a new city, several hours away from our current one... it should be clear that I'm getting a new job. We're upset that the letter came so late on a Friday so we need to wait until Monday to talk to our mortgage lady (yes, we are talking to her in person first thing Monday). But... can anyone ease our minds until then? We plan to go in & be firm that this get straightened out ASAP; that this was never part of the deal, we will lose thousands of dollars if this doesn't go through, and we heard about this just three $%#king days before the closing! Is it possible this was just a miscommunication to the preparer of the letter and is a non-issue? Spouse's (wealthy-ish) parents are prepared to co-sign on the mortgage... would it fix everything to have the paperwork re-drawn with them as cosigners & keep our same loan amount? Fwiw I do have a pending job offer, but that may be end of April before that's settled and I'm sure the bank's not interested anything that's not in writing yet.

Any mortgage bankers in MeFi land? Is this something to be worried about?
posted by rpaxton to Work & Money (12 answers total)
Are you sure by "borrowers" they mean both of you? I know it's in plural, but it may just mean your husband (if it's not a miscommunication.)
posted by Solon and Thanks at 6:26 PM on March 26, 2010 [1 favorite]

Response by poster: I forgot to mention: Spouse & I currently work for the same company, which may be a source of some of the bank's confusion. I will not be working for this same company after 4/2.
posted by rpaxton at 6:30 PM on March 26, 2010

I hate to say this but yes, this is something to worry about. It's a closing condition-it'll have to be addressed. The loan is predicated on the income you are currently making. The bank should have asked this in the very beginning during underwriting. I can't imagine why they waited until now to bring it up. If I was your loan officer, I would have asked what your job arrangements were the day you came in to apply for a loan to purchase a home hours away from your current job. She dropped the ball. And the underwriter should have caught it, even if the loan officer missed it.

Is it possible for you to qualify for this loan with just your spouse's income? If so, they can probably just requalify you that way. If not, co-signers may or may not help. Where I work now, co-signers don't help with a lack of income, only with a lack of credit. But other banks may have different guidelines. Is this a small bank with in house underwriting and servicing that might be flexible since they screwed up? Or is this a secondary market mortgage with a huge bank?

I have seen closings blown for stuff like this, I hope that doesn't happen to you.
posted by supercapitalist at 6:59 PM on March 26, 2010 [1 favorite]

Ditto supercapitalist. A few years back, like when you bought your last house, all you needed was a pulse to get a loan, now banks are much more careful about who they lend to income-wise. If you used your income to qualify for the loan and now will not have said income, the bank has every right to rescind their financing offer.
posted by MsKim at 7:04 PM on March 26, 2010

Agreed with the above posters. You need to speak with your mortgage representative first thing Monday morning and ride the phone until this problem is resolved. Assume that you won't get it resolved in time for the closing. And, yes, everyone else is correct that this should have been caught at the beginning of the process; nonetheless, it is also correct that requirements are much more stringent these days than they used to be, and that any person buying with a mortgage should assume that something will go wrong at the last minute.

Probably not the answer you wanted to hear, but there you have it.
posted by dfriedman at 7:09 PM on March 26, 2010

I had a sort of similar situation asking my employer to vouch for my job. The cold hearted folks at my place of employ said that they do no write letters attesting to future employment unless you have a contract. Otherwise they will write a letter that says you were employed yesterday, again today and are expected to show up tomorrow, but beyond that they are not committing.

Not sure what the bank would do under those circumstances. My lender backed off. I think it was because of my loan to value ratio. I was only borrowing 48% of the purchase price. If you are putting down a decent chunk, have them consider that in lieu of the letter.
posted by JohnnyGunn at 7:40 PM on March 26, 2010

I was one month from closing on my house, and had already had the same checks and such as you when my company (Enron) went belly-up. My lender called me and explained that I'd need to have a job, with equivalent pay and the same or similar job title on the day of closing as they always verify employment on closing day, even though they'd checked already.

My options were:
- Get a similar job, immediately. I could quit the day after closing if I wished.
- Have someone commit fraud, and sign a paper saying I was their employee when I wasn't. (Illegal)
- Getting a signature-only loan through another (shady) company. (Those are probably not available these days.)
- Passing on the house.

My options were not:
- Putting more money down.
- Showing them I had money for at least one year's mortgage payments.
- Getting a waitressing job or similarly easier-to-find job (my job at Enron was not waiting tables).

Like others, I recommend contacting the lender immediately. What they are doing is completely standard. It can derail your closing.
posted by Houstonian at 7:58 PM on March 26, 2010

It's possible that it's merely a grammatical error, so don't panic too much, but definitely get it clarified.
posted by Jacqueline at 8:50 PM on March 26, 2010 [1 favorite]

Yes, be concerned. Note that their concern is you having an income to pay this back, so if you have a new job in the new city lined up, contact the bank immediately, tell them forthrightly that you cannot provide the letter as requested but can provide a letter from your new employer, and go from there.

Of course, if you do not have a new job in the new city, this is problematic.
posted by davejay at 9:22 PM on March 26, 2010

On the other hand, if you did NOT provide information about YOUR current income, it won't matter that this income won't be coming in anymore.
posted by salvia at 9:57 PM on March 26, 2010

This answer might be too late to prevent a weekend of worrying, but you ought to be able to figure out whether the bank is going to be concerned about the loss of part of your household income. Your income is used pretty much exclusively to calculate two different debt-to-income ratios. Both are essentially ways to measure whether you are bringing in enough income to pay for your mortgage and all your other costs of living. There are two different measures: Front-End Debt to Income Ratio and Back-End Debt to Income Ratio.

The Front End Ratio is your (total monthly housing payments) / (total monthly pre-tax income). Total housing payments include your monthly mortgage payments, homeowners insurance, property taxes, homeowners association dues, and second mortgage payments. Front End Debt to Income ratio basically measures whether you are buying too much home for your income. Typically, banks like to see it be under 28%.

The Back End Ratio is your (total monthly housing payments + total of all other monthly debt payments) / (total monthly pre-tax income). Things that fall into the category of all other monthly debt payments include student loans, minimum credit card payments, auto loans and the like. Don't include other monthly payments that are not monthly debts such as utilities, or credit card payments above your minimum, or that $5,000 you promised to pay back your father-in-law in 5 years. If a high Front End Ratio means you're buying too much house, a high Back End Ratio would mean you're taking on too much debt. Banks like to see the back end ratio be under 36%.

Clearly, if you're losing part of your income, both the front end and back end ratios are going to be higher than if you kept your job. But if the new number is under the thresholds above, the bank is very unlikely to care. If you exceed the ratios, the bank might still underwrite your mortgage if you have impeccable credit, a high net worth (e.g. you own valuable stock, other real estate, etc)., or are making a very large down payment (well in excess of 20%).

Disclaimer: I don't work in a bank, and am not a loan officer or mortgage broker. I hope I'm not making any mistakes. My knowledge is based on writing software for the mortgage industry, so I'm fairly certain it's accurate. But not 100%. Hope this helps.
posted by centerweight at 8:41 PM on March 28, 2010

How did it go?
posted by peep at 11:32 AM on April 2, 2010

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