Lender Cover Up? Down Payment Assistance for FHA Approved Home Buyers in California

Unfortunately, very few home buyers in California using FHA loans to purchase realize they may qualify for down payment or closing cost assistance.  Why is this? Why aren’t lenders telling home buyers about programs that will save their buyers money?

OK, I admit it.  This may be controversial among some of my peers, and I’ll likely draw some criticism just for bringing it up, but I can’t take it any longer.  My desire to ask ‘why’ all the time has gotten me in trouble a few times, so I apologize for the rant…..I know this is a no-no in the blogging world, so forgive me….my tongue is hurting.

Why aren’t you being informed?

This week alone, I have received three calls from home buyers currently in escrow and two other buyers with offers on multiple homes.  All five were in different cities of the Inland Empire – Temecula, Murrieta, Menifee, Corona, and Riverside.

All five called asking how to receive the down payment assistance program they read about on my Inland Empire Mortgage, Rates & Real Estate blog.  All five conversations went basically like this.  As I so often do, I answered them with another question, “Didn’t your lender or loan officer tell you about the down payment or closing cost assistance programs available to you during your pre-approval process?”  Nope.

I even found out one of the buyers making offers doesn’t even have enough money to close on the home.  His lender wrote an approval letter full well knowing he doesn’t have the money to close on the transaction!!  (that’s a topic for a like 5 other blog posts)

But then I thought, maybe their Lender didn’t tell them because he/she knew they wouldn’t qualify due to the income or credit qualifying requirements associated with the down payment assistance programs.  Maybe the buyers actually made too much money to qualify?  So I asked all five about their income, credit scores, and types of home they are buying.   Turns out all five qualify for the CHF 3% Down Payment Assistance Grant Program, which is available to home buyers in California.  It’s free money, not deferred interest, not a 2nd lien, and still closes in 30 days if all goes right.

I was going through this mental checklist thinking something must be wrong.  What would motivate a mortgage lender or mortgage broker to not tell their client, who places all their trust in them, about their ability to receive a 3% grant to pay towards the buyers down payment?  I know for a fact that four of the five lenders they were working with could provide the program for them, but they didn’t tell their borrowers!

Think think think (pooh)

There could only be three reasons why a mortgage lender or broker would not tell their client about all the loan programs or assistance programs available to them.  Think this through with me please.

1. The Loan Officer isn’t aware of the other programs. I can see this.  I can admit there’s a lot I don’t know….I’m always learning.  You can’t tell someone something that you don’t know yourself…..even though it’s your job…and you are getting paid to advise and know these things.   But maybe it’s the LO’s first week on the job…..yikes.
2. The Loan Officer knows about the special programs but doesn’t have the ability to offer the program to the client. Fair enough, but how does the Loan Officer go to bed at night knowing they are purposely withholding information from their client that could save them big time money?  Is there no guilt?  I guess they justify it by thinking that if they tell the borrower, they will lose them as a client, which means no commission.  Who’s best interest are they watching out for again? No wonder we have so many new pay regulations being legislated in congress right now.  Most lenders do not have the flexibility to broker out a loan if their bank doesn’t offer it.  I guess that’s the downside to working with a bank not licensed by the CA Dept of Real Estate….they can’t broker out loans they can’t can’t do themselves! (this is why I choose to work for a mortgage broker that is also direct lender – the best of both worlds)
3. The Loan Officer knows about the special programs, has the ability to offer them, but still chooses not to offer (or even explain) the programs to the borrower. In my book, the only thing worse could be if the Loan Officer lies to the borrower about the special program and tells them they don’t qualify……..this is just flat out wrong.  Maybe the lender was just too lazy to fill out the extra paperwork required.  Or maybe the loan officer makes less money when offering the borrower the down payment assistance program…….oh oh…I think this could be one plausible reason….get me a chicken dinner.

Am I way off base here?  I’m open to amending this list with any other reasons you can think why a mortgage lender would not tell their client about all the loan options available to them…even when they can’t offer it or do the loan.

Have I ever referred a borrower to another lender because I thought they could be better served working with them or because they had access to a specialty loan program that I didn’t? Absolutely yes.  How often? Two times this month and I think three times in December.  On average, I probably refer two buyers a month to other lenders for this reason.

Have you ever heard of Bank of America, Wells Fargo, CHASE, Citibank, or any credit union referring a borrower to another lender when they can’t do the loan or don’t have access to a specialty program the borrower would benefit from?  I haven’t.  Why Not?

I wonder if my friend count on Facebook, Twitter, or Linked will be dropping for talking about this.

If you are preparing to purchase a home and would like to get pre-approved or discuss your loan options, call me direct at (951) 215-6119 or email brad (at) homeloanartist (dot) com.

Article of Interest:

• Which 3% Down Payment Assistance Program is Better?  CHDAP, Platinum, or ACCESS?