Refi crashes and burns
December 18, 2010 10:40 AM Subscribe
I recently started a refi process with a broker highly recommended by a friend. Everything went swimmingly until our rental unit brought the entire process to a halt. Appraisal fee out the door and no new mortgage. What to do now?
We are in the last part of a 30 day lock on a great loan. Our broker led us by the hand, gave us a really good deal and things have all been looking pretty good until the underwriter for the bank spotted a sizable deposit that we could only represent as what it was, a payment for rent on a converted carport/studio attached to our house.
The details of the loan were 130k loan at 3.88%, 15 yr fixed on a single family home worth around 200k, about $1.5k in fees for the loan. We mentioned to the broker that we had a rental, it's not like we were hiding this under a rock. Our appraiser had told us not to mention this to anyone but my partner let the fact slip out to the broker, and then there's that deposit on our statement. Plus we declare the income on our taxes. Plus the rental check has 'rent' on it in big bold relief.
Our broker is very sorry, hasn't submitted the loan to the underwriter again because he says it won't fly, our loan will be nonconforming. He's apologized, offered to pay for a second appraisal, said he misjudged the requirements and so forth. Rates have gone up since we went into lock which has perhaps 7 days left to get done which it probably won't.
So, I'm stewing a bit in a legal and ethical quandary about this.
I'm thinking my broker led me down the garden path, cost me an appraisal fee, and ended up not getting the job done. That's a sunk cost. On the other hand, perhaps our relationship could still be fruitful, this could just be a learning experience for me, a somewhat costly but unavoidable one.
I could have done more research than I did on the whole process certainly. That's a flaw on my part I'm remedying with research.
Then there's the legal and ethical relationship with the broker and as well with the bank. Can I legally have this broker present my economic records to a financial institution in a way that basically deletes the rental from the record as he seems to offering to do? What's his legal boundaries, and what are mine?
This has brought up a huge set of questions for me that I'm getting paralysis analysis. I could do a rage dump on the broker, who is a good guy, he didn't rent out my studio and then try to refi, I did.
There's the question around what I'm legally obligated to provide to the bank. I can understand that if I misrepresent the financial facts behind a contract, that leaves me liable in some fashion, though once I have the loan the facts on the ground won't really matter to anyone as long as the mortgage gets paid.
Bottom line is I don't really care if a bank knows I have a rental. It's none of their business, and I don't particularly care to misrepresent myself or actively lie in order to get a loan. But should I choose to do so, there's this broker guy in the middle.
I'm curious what thoughts come out of this from other Mefites. I need some clarity and different ways to consider this.
We are in the last part of a 30 day lock on a great loan. Our broker led us by the hand, gave us a really good deal and things have all been looking pretty good until the underwriter for the bank spotted a sizable deposit that we could only represent as what it was, a payment for rent on a converted carport/studio attached to our house.
The details of the loan were 130k loan at 3.88%, 15 yr fixed on a single family home worth around 200k, about $1.5k in fees for the loan. We mentioned to the broker that we had a rental, it's not like we were hiding this under a rock. Our appraiser had told us not to mention this to anyone but my partner let the fact slip out to the broker, and then there's that deposit on our statement. Plus we declare the income on our taxes. Plus the rental check has 'rent' on it in big bold relief.
Our broker is very sorry, hasn't submitted the loan to the underwriter again because he says it won't fly, our loan will be nonconforming. He's apologized, offered to pay for a second appraisal, said he misjudged the requirements and so forth. Rates have gone up since we went into lock which has perhaps 7 days left to get done which it probably won't.
So, I'm stewing a bit in a legal and ethical quandary about this.
I'm thinking my broker led me down the garden path, cost me an appraisal fee, and ended up not getting the job done. That's a sunk cost. On the other hand, perhaps our relationship could still be fruitful, this could just be a learning experience for me, a somewhat costly but unavoidable one.
I could have done more research than I did on the whole process certainly. That's a flaw on my part I'm remedying with research.
Then there's the legal and ethical relationship with the broker and as well with the bank. Can I legally have this broker present my economic records to a financial institution in a way that basically deletes the rental from the record as he seems to offering to do? What's his legal boundaries, and what are mine?
This has brought up a huge set of questions for me that I'm getting paralysis analysis. I could do a rage dump on the broker, who is a good guy, he didn't rent out my studio and then try to refi, I did.
There's the question around what I'm legally obligated to provide to the bank. I can understand that if I misrepresent the financial facts behind a contract, that leaves me liable in some fashion, though once I have the loan the facts on the ground won't really matter to anyone as long as the mortgage gets paid.
Bottom line is I don't really care if a bank knows I have a rental. It's none of their business, and I don't particularly care to misrepresent myself or actively lie in order to get a loan. But should I choose to do so, there's this broker guy in the middle.
I'm curious what thoughts come out of this from other Mefites. I need some clarity and different ways to consider this.
Did you know you were committing fraud? if the broker told you that was the case but he was willing to play ball, then you have no reason to be upset. You both got caught trying to cheat. It happens. You just got unlucky WRT to timing. If your time line was a month earlier you would have been fine in terms of rate (ex the bump you would have to pay for the non-conforming nature of the loan). If you didn't realize that was a condition of the loan, and you would have informed the broker it was not appropriate for you, then yes you should be pissed off at the broker and find someone else to do the deal with.
I mean its hard to feel a whole lot of compassion for you if you went into this with your eyes open. The flip side is rates are still really low, even if they are up a bunch in the last few weeks.
Bottom line is I don't really care if a bank knows I have a rental. It's none of their business
no, it is their business, in fact it is the very definition of things they have a right to know. If part of your income comes from renting the studio rather than a paycheck that matters from an underwriting perspective.
posted by JPD at 11:00 AM on December 18, 2010
I mean its hard to feel a whole lot of compassion for you if you went into this with your eyes open. The flip side is rates are still really low, even if they are up a bunch in the last few weeks.
Bottom line is I don't really care if a bank knows I have a rental. It's none of their business
no, it is their business, in fact it is the very definition of things they have a right to know. If part of your income comes from renting the studio rather than a paycheck that matters from an underwriting perspective.
posted by JPD at 11:00 AM on December 18, 2010
Your broker should have asked more questions and found you a more appropriate loan. I'd ask for lots of money back. Then go to a credit union and get a different refi.
posted by theora55 at 11:31 AM on December 18, 2010
posted by theora55 at 11:31 AM on December 18, 2010
My curiosity is why the rental is causing problems at all. The fact that you have more cash coming in should be a good thing. This is still your primary residence, right?
posted by gjc at 12:57 PM on December 18, 2010
posted by gjc at 12:57 PM on December 18, 2010
Best answer: gjc: mortgage-writing guidelines differ significantly if the mortgage is on the home you live in or on a property rented out. A combined primary residence and income property residence cannot be covered by the sort of mortgage written for a home the borrower simply lives in under the mortgage-writing guidelines in place at U.S. lenders. In fact, most mortgages on a personal residence, written in the U.S., include a clause wherein the borrower swears that he or she intends to make the home his or her primary residence for (generally) 12 months after the signing of the mortgage and if the borrower breaks that promise, the bank generally reserves the right to foreclose the mortgage. Lenders don't necessarily exercise that right--if you have an unexpected change in life circumstance, move and rent out your place instead of living in it or selling it, it's the rare mortgage company that will foreclose, but they do reserve the right to do so.
posted by crush-onastick at 3:02 PM on December 18, 2010
posted by crush-onastick at 3:02 PM on December 18, 2010
I can't help with your situation with this particular broker, but if you decide to forego brokers completely and get a refi directly from the lender (per theora55's comment), I went through a refi this summer and was very happy with the lender I worked with. I won't spam the thread with the info, but if you MeFi mail me, I'll give you his contact info.
posted by Alt F4 at 6:22 PM on December 18, 2010
posted by Alt F4 at 6:22 PM on December 18, 2010
Response by poster: I'm not asking for compassion and pretty much expected some severe reality checks from posting this. That's why I posted in the first place, to get that kind of information. To those who misread the thread, try reading it again. The loan process stopped when it became apparent that my scenario would be nonconforming. My broker did a poor job of explaining to us the consequences of having a nonconforming loan situation and there's the legal and ethical consequences of moving forward from this point with misrepresenting a deposit, which we have not done.
It's tempting to get upset when I see people posting that we were committing fraud by requesting a loan. Really get a life. I'll need to recalibrate based on what's actually happening and see what it would take to get a loan based on my rental and if that's possible. I'm not willing to transgress the law to get a loan, that's clear, and it helps to have the legal boundaries of what's permissible made more transparent, so thanks for that information.
As for my broker, I don't know if i will ask for a refund. I'm not happy with the situation but I'm the one who started it, so hard to blame it on a third party. I think my next step is to start asking how my actual situation could be refinanced and see what comes from that.
Thanks for the input.
posted by diode at 8:02 AM on December 19, 2010
It's tempting to get upset when I see people posting that we were committing fraud by requesting a loan. Really get a life. I'll need to recalibrate based on what's actually happening and see what it would take to get a loan based on my rental and if that's possible. I'm not willing to transgress the law to get a loan, that's clear, and it helps to have the legal boundaries of what's permissible made more transparent, so thanks for that information.
As for my broker, I don't know if i will ask for a refund. I'm not happy with the situation but I'm the one who started it, so hard to blame it on a third party. I think my next step is to start asking how my actual situation could be refinanced and see what comes from that.
Thanks for the input.
posted by diode at 8:02 AM on December 19, 2010
This thread is closed to new comments.
vs.
I don't particularly care to misrepresent myself or actively lie in order to get a loan. But should I choose to do so, there's this broker guy in the middle.
So you don't want to commit fraud or you do?
posted by lockestockbarrel at 10:48 AM on December 18, 2010