Ouch... This one really hurt

[Zac Vaughan]

I have been working with a lender for the past 2 months now. I do not have the best credit(work in progress) and he told me he could get me pre-approved for $250,000 with 3.5% down(FHA), but I have to improve my credit by paying off debt.

I agreed and paid off just under $10,000 of debt from my business income. After getting a property under contract, it turns out we can not use my business income as proof of income and now I can only get approved for $170,000. 

After getting another property under contract, I received a message from my lender saying due to my debt to income ratio, the lender is NOW requesting 10% down instead of the original 3.5% AND the lender was still going to charge points. A $148k purchase was going to cost me $13,000 and that was just with 3.5% down, not the new 10%. 

If I would have known I needed 10% down in the first place I would have never started looking for a property. 

2 months of my time and my agent's time were completely wasted. Not only that but I spent an additional $4,000 in appraisals, inspections, and earnest that I will not be getting back. 

I told that lender I will not be using him. Any advice on how to avoid this in the future?

[Caroline Gerardo]

This lender has how many years licensed? Any license complaints at NMLS? Lender is dufus. Might be able to get EMD back if you fight, I would encourage you to see is contract has arbitration, send letter to agents both sides and escrow or attorney. Your agent is part of the mess. Who is lender? If a bank go to the Regional Manager in writing. Only thing that matters in real estate is what is in writing.

Lender could have run a credit model as to what if you paid off debts and thus get x FICO boost but should not have told you to pay them.

You can get a FHA loan with a 500 FICO but the rate is to the moon. Better to have closed with the high rate and then work on organizing you credit and using something like quickbooks to pay on time and change your habits.