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My wife and I chose a lender who pre-approved us for the USDA Guaranteed Rural Housing Mortgage. We submitted all of paperwork (tax returns, pay stubs, etc.), were assured our finances looked great, our credit was fantastic, and we were all set to start hunting for our new home. We made an offer on a great place, signed off on the application, disclosures, and received our GFE. Inspection completed, appraisal ordered. Now, two weeks under contract, the lender informs us that our income is too high to qualify for the USDA loan!!
No new information had been submitted - the lender had all of our income documentation from the beginning. And they hadn't realized our income was too high until we were already under contract? Now they tell us the only option is to switch to a conventional loan with a 3% downpayment (that we don't have), and lose the 3.875% interest rate that we had locked for the USDA loan.
What now?
They are saying the thing that is putting us over the limit is a "lease bonus" I received last year from an oil company for allowing them to lease some land I own. It can be thought of as a "signing bonus" more or less; I am not currently receiving any income (rents, royalties, etc.) from the property, and I am not likely to anytime soon. The money I received last year was documented in last year's tax return as "rental income" however (that's what the IRS requires it to be reported as, even though the description is not completely accurate).
Since the payment was a one time, lump sum windfall from a previous year, should it really be considered income for the purposes of qualifying for the loan?
Unfortunately, the income used is what is reported to the IRS. Just one year or even a year-to-date pay stub showing you on track to break thru the max boundaries will put you out of the running on the program. It's pretty cut and dry.
I wouldn't refer to it as bait and switch. What's in it for them?
Well, I'm not sure. I guess I just don't understand why they told us we qualified for the program when we pre-approved, then all of the sudden, after we went under contract, they told us we didn't. Like I said, they were given all of our tax returns and pay stubs a month before. This should not have been a surprise. Had we known we didn't qualify for the USDA loan, we would have never made the offer. Factoring in PMI and the interest rate that is now nearly a full point higher than it was when we started the process, it is still cheaper to rent in our market.
Since the payment was a one time, lump sum windfall from a previous year, should it really be considered income for the purposes of qualifying for the loan?
Did you fail to tell them about this income when you applied?
How much do you make per year? $30,000
Ok, you approved.
Later.... Your tax returns say you made $100,000 last year.
Oh yeah, that was rental income, doesn't count does it?
Um... Yeah it does. Can't offer you the loan.
Did you fail to tell them about this income when you applied?
Again, all income was fully disclosed before approval. Two years of tax returns and last two pay stubs were submitted to the lender the first day we met with them.
This probably came from underwriting. The person you initially hand paperwork into doesn't do much with it or really go through it. They just verify that you submitted the requested documents. There are several people working behind the scenes on a mortgage. It's not all on the guy who you hand the mountain of dead trees to. USDA loans are challenging and very different from loans they see much more often.
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