MLO made a serious error that put me and my spouse at risk
My spouse and I are first-time homebuyers and applied for pre-approval with a reputable local bank last month. We were pre-approved for a rural development loan, immediately signed a contract with a buyer agent, and started house-hunting.
This probably goes without saying, but we had a very difficult time finding property within our budget. Things move extremely fast and the market is insanely competitive. Luckily for us, we have a very experienced realtor with excellent connections and finally had our offer accepted on a house that we love. Our agent promptly notified the MLO. The loan officer took several days to even acknowledge us, but we quickly completed the mortgage application. This happened AFTER we had already paid for inspections and put up earnest money. Inspections cost us almost $1000 and earnest money was $2000.
A few days later, the MLO called my husband and told him that we actually do NOT qualify for an RD loan because we are over the income limit by about $25k. We started this process believing that we qualified for 0% down payment with the RD loan and would only have to cover closing costs. We did not initially ask the seller to cover any closing costs because that would make our offer more competitive.
So now we are getting an FHA loan, which requires a 3.5% down payment. We just barely have enough cash to cover this plus closing, and are going to have to completely drain our savings. My husband is emptying out his 401k. We decided to do this because our current living situation is abysmal, we really want the house, and we don't want to lose all the money we have already put into this.
This whole situation could have been avoided if the MLO had taken the time to look more closely at our finances during the pre-approval process. It seems incredibly sloppy and unprofessional on his part. I'm struggling to understand how he was unaware that we were over the income limit on the RD loan. My question is, do I report this to his supervisor? Would that do more harm than good? Should I report this now or after closing? I really doubt they will be able to do anything to mitigate the situation.