Lender negligence may cause us to lose owner-occupied purchase 5 days prior to close

[Juan Ayala]

Hi BP Fam! I am in urgent and desperate need to hear from an honest lender/attorney on this matter. We were supposed to close on our home on June 27, 2023. Now due to lender negligence won't be able to.  

Background: I am a service member and we received a short 45-day notice to move from California to New Mexico. We found a home and went under contract on May 12, 2023. My lender waited till June 21, 2023, to inform me that a new requirement was added which now requires an appraisal on our previous home that we lived in and we have tenants in place since June 05, 2023. Below is his response when I shared my frustration with my lender:

He was well aware from the beginning that we would keep the home and rent it out. He failed to inform me that FHA has a rule that the Borrower has to have at least 25 percent equity in the Property. We, unfortunately, do not have enough equity. Had he known the FHA regulation and informed me of this from the beginning we would not be in this situation. According to him, all I needed was to have a tenant in place to cover my liability and show proof via a lease.

Below is a snip from the FHA SINGLE FAMILY HOUSING POLICY LIBRARY : 4000.1: FHA Single Family Housing Policy Handbook. Highlighted in grey is what I should have been informed about from the jump and seems to be policy since April 2023. We have been living in hotels since June 05, 2023, because according to my lender, we were GTG on all cylinders. Please advise on any workarounds to keep this home or if I should move on and take this lender to court...TIA Biggerpockets family!