Is My Lender Full of $@*T?

Question

I just received the text message, below, from a potential mortgage broker who is claiming that because the house I want to buy is a 3-unit, I will need to put down 15% for an FHA loan or 25% for a conventional loan... Is he full of $@*T?

“Good evening! I have gone over guidelines for multiunit properties for FHA & conventional with 4 lenders. Conventional will require 25% down payment plus closing costs and FHA is 15% down payment plus closing costs.

So...with that in mind, you will need approx $19,000 to go FHA and $32,000 to go conventional.

Interest rate on the FHA loan would be 3.85%”

Shaun Weekes · Answer

Since your rents are going to be more than your total mortgage payment including taxes, insurance and PMI you shouldn't have a problem with the 3.5% down.  You must live in one of the units since this is FHA.  The numbers that he is giving you sound like OVERLAYS to me.  Mortgage Lenders a lot of the time will add additional rules to what Fannie & Freddie etc. require.  The numbers that are being sent to you are incorrect.  What state is this home in?

Account Closed · Answer

The FHA is 3.5% down. If this requirement is higher it may be a bank issue or rule, though who knows now a days.

My answer is find a new bank.  Looks like you are using a broker, don’t, pick up your phone and make some phone calls to actual banks.

Russell Brazil · Answer

What market are you in?

It is likely you are running into the FHA Self Sufficiency test which applies to 3 and 4 unit properties but does not apply to 2 unit properties. In todays market, in expensive metro areas, it may be near impossible to find 3-4 units that meet the FHA self sufficiency test.

Mary M. · Answer

My guess is the broker is not understanding you will be owner occupying. Be sure to let them know this info

Rick Sheldon · Answer

@Eric C. Thanks, I have been preapproved by Two other lenders but was leaning towards this broker because of my agents recommendation. I have been nurturing the relationships with the other lenders, and I fired off emails to them right after I heard this from this broker.

And honestly, this agent hasn’t been that great either but the deal was too good to pass up so I went with her to close as quickly as possible.

Bill Goodland · Answer

I had quicken loans basically tell me the same thing. I think fannie/freddie loans won't let you do less than 10% for 2-4 units but FHA you can put as little as 3.5% down. Slightly more closing costs on the loan, but you're allowed up to 6% in seller assistance to pay for your closing costs and FHA will often be a significantly lower rate than conventional. A lot of things they claim are "guidelines" are actually just the specific lenders requirements and not national requirements. Shop around.

Rick Sheldon · Answer

@Russell Brazil in a LCOL area in the Midwest. Purchase price of $125K and about $1900 in gross rents ($1375 for units I won’t be occupying) so it sounds like it should pass any criteria like this

Rick Sheldon · Answer

@Frank Jiang the title was mostly click bait because I’ve posited on BP without many responses.

I agree with most of what you said, but this is a lender who made it seem like I would be able to get a 3.5% down FHA loan, then ignored me for 4 days then came back with this message, saying that all four lenders he spoke with require 15%. Either he is bad at his job or he probably didn’t actually speak to 4 lenders.

Frank Jiang · Answer

I would recommend changing your mentality about business relationships.

What I mean by this is: the lender is probably not "full of ****" or "bsing you".  It is true that under FHA guidelines, you should be able to put 3.5% on up to a 4-plex.  However, specific lenders have items called "overlays" which are additional rules on top of traditional lending guidelines that their underwriters have identified as unacceptable risks.  For example, this lender may have an overlay that any property with over 2 units requires an additional down payment to mitigate risk.  This is a reasonable risk adjustment on the part of the bank and your lender has no control over this.

All you have to do is go find another lending institution without this overlay instead of spending time insinuating that this person is lying to you when they likely are simply conforming to the rules of their individual institution.

Brian Ellis · Answer

I would move on. Sounds like BS to me, unless you have shaky credit and the lender is just going to get you into a conventional loan. FHA is always 3.5% down, you can do it with residential up to 4 units, and even commercial up to 4 units as long as 51% is considered liveable/residential.

Is My Lender Full of $@*T?

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