Help - Financing Issue

[Paul M.]

Hi Bigger Pockets Friends,

I'm writing for advice on financing because I just ran into a jam, and want to know what you all would do if you were in a similar situation. I've been following the Bigger Pockets forum for a couple months, and have been reading your advice on various topic, ranging from financing to assessing a property, to minor issues like how to find hardware for cabinetry. All of your advice has been incredible, and this appears to be a very well-read and experienced community. I found the forum after reading The Book on Rental Property Investing by Brandon Turner. 

So here's my issue-- I pre-qualified for a four-plex a couple months ago with a bank in NY. This property is a dream-- the rents are great (cap rate is good, etc.), I found great financing terms that will allow me to put 1% down due to a hybrid FHA/SONYMA loan called "FHA Plus," and the minor issues with the house, the seller has agreed to fix before close. Everything was right on track and the process was moving efficiently and according to plan.

Until today. The bank called me and I heard the originator on the other end of the line say, "I've honestly only had this happen a couple times in my career... It's a once in a blue moon kind of thing, and I hate making these calls." The automatic underwriting denied the loan. It turns out that a credit collections agency, unbeknownst to me, had placed a seriously delinquent collection on my credit accounts in the last month and it tanked my scores below the 680 threshold for FHA Plus that is used by M&T (the bank). I didn't know what this account was, so I asked the banker to give me the information from my credit report (I have Credit Karma, and this account has not showed up on Transunion or Equifax).

It was an old account from Geico that I owed around $80 on. I never received a notice, mailing, or call from the credit collector. I called the collector and asked them how this could have happened, and they let me know that they did send out a mailing (to an address that I have not lived at for over 2 years). So, given that they sent it to the wrong address, they agreed to delete the account from my credit reports if I paid in full. I paid in full over the phone.

Apparently they notify the credit bureaus within a week, and the credit bureaus can take a month to delete the information. The bank says they don't know if this will improve the score enough to get me the mortgage, but they will try to contact the credit bureaus to re-score in a week.

I also have the problem that the contract specifies that we have to close by around July 20. I know FHA loans can take like 45 days to 2 months. I can't afford a loan with a larger down payment because the sale price (around $250k) would put me outside my reserves and cash on hand amount.

Is there anything I can do here? I was totally blindsided and I don't know if I have any recourse or way to expedite things so that the bank can re-score and get my credit scores back to what they were when they initially prequalified me. Is there any way I can compel the credit collections firm to do this faster, given that they didn't provide proper notice, and the delay could cause me to lose the house?

Thank you Bigger Pockets experts, and I appreciate any advice you can give on down payment options, recourse, creative financing, etc. I have a great job that I've had for over two years and other than this, my credit scores are good and I always pay on time. My student loan payments are low too (income-based).

Best of luck to all the rest of you in your investing!