Credit score gone down and Broker now wants more down payment

[onelle]

We were preapproved in April but due to delays in required documents, loan process had to wait. Now that the loan process started again, they pulled my credit score and since my husband's score and mine combined has gone down to mid-640s, my broker said that I'm approved of the loan with 5% down(30k).

I want out of the ratified contract with a disapproval letter from the broker/lender but he said I have the funds in my retirement savings. Should I use my retirement savings to put down for a home loan and hope that I'd get it back when I sell it in 3 years? Or should I use the savings to pay off debt to increase the score and get a better rate/or eliminate the 5% down requirement? If I pay off the debt, how long does it take for it to increase?

[tooleman694]

If you are going FHA, being over 640 should be good for the best rates and lowest down.

[Jazzzy]

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@onelle wrote:

Should I use my retirement savings to put down for a home loan and hope that I'd get it back when I sell it in 3 years? Or should I use the savings to pay off debt to increase the score and get a better rate/or eliminate the 5% down requirement?

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If you are asking for an honest opinion...you "should" leave your retirement savings in your retirement account. Retirement savings are not meant for the down payment on a home or to pay down old debt. Those funds are meant for retirement.

[tooleman694]

There is nothing wrong with leveraging your retirement cash to work for you.

[onelle]

Thanks all for the responses. The basis of them approving me the loan is if I put down 5%, which they thought I can afford since they saw that I have that much in my retirement savings account, which by the way I can only withdraw it as a loan. Broker won't give me a disapproval letter to get out of the ratified contract because he said that I have the funds (in my retirement savings).

I refuse to use my savings. This next question is not related to FICO but do you happen to know if a lender can lawfully hold that against me-the borrower?

[Hoya08]

You can walk away from the ratified-contract.  However, you will most likely loose your earnest money or any down payment on the ratified contract.

The lender doesn't want you to walk away since they want your business.  You can possibly try another lender.

[tammyjk]

I've been were you are sort of.  First, is the 5 percent required because of your DTI or just because your score went down?  If it is because of your score, stop and shop around.  Since your broker came back with conditions, you have an FHA case number with an approval (w/conditions).  Call other brokers and get their take.  I did exactly that because I did not like the conditions from the first broker.  Your new broker will get the FHA case number transferred over and you will be right back on track.  Do not get a turn down from the first.  In fact if he tries to do that stop them.  I switched brokers in the exact place you are and it took 20 days to finish....I close on Tuesday.  And no conditions. 

Also get out your good faith estimate and shop that as well.

[onelle]

Thank you. It's a relief to know that someone has gone through what I'm going through now and were able to get resolution. Broker said that it was because of my score has gone down (due to inquiries - I scouted around for other lenders/brokers). I also did what he told me to do (pay off some cards - I paid 2 off) but that didn't raise the score enough.

Did you have to pay any fees with your first broker? I know I have to pay for the home appraisal that they paid for but other than that, will they charge me for any filing or other fees?

I already started to look for another broker and this lender(person #2) contacted me and advised me to ask for 2 things.. 1) Am I approved for under the terms in the original contract($6K down)? If not, then I'll ask him of the denial letter.  2) What is the interest rate you're offering today?. If he gives me an interest rate higher than what potential lender (#2) can offer, then he(#2)  said he'll be able to take over. I also consulted a real estate atty and he said that if unless I signed a "firm mortgage commitment", then my loan was never "APPROVED", and therefore must issue a denial letter. If lender refuses, his advise was to seek a local real estate litigation atty and sue lender for any earnest money I may lose as a result. Then write a letter to the seller/seller's agent as a notice of withdrawal because of lack of mortgage commitment and ask for the return of earnest money back.

So, at this point, I can still walk away and not accept the lender's terms and just pay for the home appraisal fee?

Why do you advise against broker #1 issuing me a denial letter?

[onelle]

Thank you. It's a relief to know that someone has gone through what I'm going through now and were able to get resolution. Broker said that it was because of my score has gone down (due to inquiries - I scouted around for other lenders/brokers). I also did what he told me to do (pay off some cards - I paid 2 off) but that didn't raise the score enough.

Did you have to pay any fees with your first broker? I know I have to pay for the home appraisal that they paid for but other than that, will they charge me for any filing or other fees?

I already started to look for another broker and this lender(person #2) contacted me and advised me to ask for 2 things.. 1) Am I approved for under the terms in the original contract($6K down)? If not, then I'll ask him of the denial letter.  2) What is the interest rate you're offering today?. If he gives me an interest rate higher than what potential lender (#2) can offer, then he(#2)  said he'll be able to take over. I also consulted a real estate atty and he said that if unless I signed a "firm mortgage commitment", then my loan was never "APPROVED", and therefore must issue a denial letter. If lender refuses, his advise was to seek a local real estate litigation atty and sue lender for any earnest money I may lose as a result. Then write a letter to the seller/seller's agent as a notice of withdrawal because of lack of mortgage commitment and ask for the return of earnest money back.

So, at this point, I can still walk away and not accept the lender's terms and just pay for the home appraisal fee?

Why do you advise against broker #1 issuing me a denial letter?

[HouseBuyerGuy]

Can I ask why you would buy a $600,000 house that you plan on selling in 3 years? (if $30K is a 5% down) Is it an investment to make money on?

Keep in mind, when you sell a house you will usually pay 6% to realtors (3% for both buyer and seller agents), so your house would need to increase in value by $36,000 in 3 years.

I'd be careful risking retirement money on such an expensive hosue you don't plan to keep but for a few years, especially when there is no saying how the market will be and you don;t want to be stuck in a bad situation with a house you cannot unload.