This is a true story about me, Abe, and my first buying experience. Hopefully there will be someone on here that will benefit from this first-hand account of a predatory lender.
Back in 2003, at the age of 24, I decided to buy my own place. I had been looking online at the market in Chicago and was convinced that renting was about the same as throwing money away. For 6 months I lived out of my car. I had a small backpack with all of my clothes in it and I slept on the floors and couches of different friends in the city. I would spend 2 weeks with one guy, 3 with the next, etc. When I finally found a place that I wanted to buy, I put the offer in and the contract was on. I had gotten a preapprovel, through a lender that I was almost certain I wouldn't use, but that was convenient for getting a preapp. Suddenly, I was in a position where I needed to find a lender ASAP. I turned to the first place any young person would these days...the internet. I did a google search for "no money down home loan" and violla, up came the name of a lender that could do the loan. So, without any references or research, I set about to working with a lender I had never heard of.
When I first arrived at the office, the lady that helped me was so kind and enthusiastic I thought to my self "wow, this really is a great place." Being a Christian man, I was so happy to hear my loan officer, a mature black lady, using the phrase "Praise the Lord" all the time. She told me about how she really loved the non-profit organization I worked for and how she was going to work so hard to make sure I was taken care of.
Six weeks later, my closing was being postponed because she had not lined up the funding. The closing was rescheduled for 3 weeks from that first date. The weeks later, my closing was being postponed again because she had still not secured funding. I told her that the guy who's floor I was sleeping on was letting his lease run out because he was planning on moving into my new place when I got it. So, she scheduled the 3rd closing for the last day of my future roommate's lease.
The weeks went by and finally the day had come...with no delay in the closing this time. When I arrived at the closing table and looked at the HUD statement (list of fees), I was shocked to see ALL of the numbers were roughly double what had been shown to me on the GFE (good faith estimate). I was no longer paying $4000 in closing costs, I was paying $8000. My interest rate was no longer 4.625% (things were good back in '03), but it was 7.625%. And, my LO was no longer making 1.5%ysp (yield spread premium) but was making 2.5%. And, to top it all off, I had a messege on my phone letting me know that my LO was not going to be able to make it to the closing because she would be out of the country and could not be reached.
To make a long story short, my attorney (who was also sub-par) told me that I could either agree to the terms at hand and have a house, or I could walk away from the closing table, but someone would likely get my house and I would have no place to sleep that night (because my roommate's lease was now up). So, I just signed away and assumed that God would take care of me (I understand that theology of that sort doesn't always work, but I'm just being honest).
In the end, ended up collecting a full year's worth of rent from my roommate all at once in order to cover closing costs. And without his monthly checks, and the higher rates and payments, I paid more than twice what I had budgeted for every month, for a year, until the PPP (pre-pay penalty) expired. For 12 months I lived on ramen noodles and corn dogs from Sam's Club. 80% of my budget went toward my mortgage every month. Still, with all the trouble, that property has appreciated over $50,000 in the last 3 years and I'm glad that I decided to take it when I had the chance. The LO that screwed me over never called to see how my closing had gone. She never sent me a congratulatory letter. I never heard from her again...it was almost as though she were ashamed of something.
The moral of the story?
*Get your financing lined up first, with someone that you know or that one of your friends has used in the past.
*Leave your self some overlap between renting/buying, even as a landlord.
*Get a lawyer who understands that they're not just a proof-reader for your paperwork, but they're your advocate, defender and teammate in the deal.
*If you're willing to eat ramen (or, insert sacrifice here) you CAN afford to invest.
*No matter the troubles, real estate investing ALWAYS pays off.
Abe
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