Issued a commitment letter from lender on a home. Now I can’t close, says my income doesn’t qualify. Legal?

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Found a house I fell in love with early december after already securing financing… or so I thought. The loan officer approved me and gave me a commitment to lend letter from the bank. The only conditions on that commitment were that it pass the appraisal inspection (it’s a VA home loan) and that any conditions for repairs in my offer be met. We were supposed to close Dec 30th, but didn’t because the sellers repairs were not acceptable and he hadn’t done the repairs the VA appraiser wanted. He says he will fix them and does them repairs properly this time. House is inspected again, my private inspector and the VA inspector are happy. The house even has $ 20,000 in positive equity on the appraisal. Loan officer tells me the paperwork is essentially done, they just have to say the repairs were done and everything is good. We agree to close the 5th of January.

Monday the 4th, the loan officer calls me and says there is a problem with my residual income. I need to free up $ 120 more a month to qualify for the loan. The mortgage on my house will be $ 300 less per month than I pay in rent right now and I qualified for this apartment! I don’t have any debts except a student loan and a car payment. The student loan is only $ 80 a month so the only way to free up enough income would be to pay my car off in full, which is impossible for me right now since I don’t have 11,000 in cash.

Now he is telling me if I don’t find someone to cosign and boost my income then he can’t close the loan. I’ve already given notice on my apartment, paid a lot of money to break my lease, and bought and paid for appliances for this house.

I think a complete disaster may be averted since my mother offered on her own accord to cosign on the loan with me yesterday, but he still has me in a really bad situation. Shouldn’t my income qualification issues have come up a long time ago? Why was I given a commitment letter from the bank? Had I known it wasn’t a sure thing, I would have never put in notice on my apartment and I would never have bought appliances. Now I am stuck paying $ 500 for a VA appraisal fee if I back out, I forfeit $ 2000 in earnest money, and i’ll be homeless and forced to pull a couple more grand out of thin air to find another place to live since there are no open apartments and mine is already going to someone on the waiting list.

Is what the loan officer did legal? Even if this loan closes, I still want to know what recourse I have or if there is any way to report him. I don’t ever want this to happen to someone else.
I wasn’t asking if I had a “case,” just if they could actually do that. A commitment letter from a bank would mean that not only had I been approved for the loan (they ran my credit, had my W-2’s, paystubs, verified income and my employment, everything) but also through underwriting. There is a huge difference between a pre-approval and a commitment to lend.

  1. Reply
    Jim L
    April 29, 2011 at 9:51 pm

    I’ve been told that right around the end of 2009, Fannie Mae and Freddie Mac (the quasi-government companies that basically underwrite the mortgage industry at this time) completely overhauled their guidelines and rules for counting income. The mortgage companies and bank mortgage departments are just puppets on a string that have to live with a continually-changing set of mortgage rules.

    So yes, it is legal, and yes it certainly does stink! I am in a similar position. I was buying a house late 2009 with an approved mortgage and it did not appraise to the sale price. As we were renegotiating and re-doing the paperwork, the rules changed and now the mortgage banker will only count 70% of my income because I have had my job for less than 2 years. So now my income/loan ratio doesn’t meet requirements. I have an 805 credit score btw.

    The whole thing is ridiculous – how does the government expect to get out of this economic mess and revive the housing market when they make it virtually impossible for a large percentage of people to get a mortgage? All because of the crooks and shysters who caused this problem but came out making millions with government bailouts, honest people with the ability to pay their mortgage and being shut out of the housing market.

  2. Reply
    April 29, 2011 at 10:10 pm

    I don’t think you have any “case.” A preliminary approval or preapproval is always just that: preliminary. The underwriting process and loan approval isn’t final until the deal closes and a lot of loans fall through at the last minute. It may be unfair but it’s a fact.

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