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I need some help understanding the financing contingency in a contract. I am trying to purchase a home but have run in to some issues with my mortgage company and need to back out of the contract. There is a financing contingency that is still in effect.
Here is what happened. When I originally discussed my loan with my mortgage company they gave me a pre-approval for an FHA loan at 3.5% down. However, after going through underwriting, they were trying to force me to buy points in order to lower the payment. This was increasing my downpayment to nearly 6%. They claimed it was necessary for me to buy points in order to lower my monthly payments and keep my ratios in line. I don't have that kind of liquid cash available. Technically, I probably do have it available, but I'd be liquidating all of my assets and taking loans from my 401k. We'd have nothing left after we purchased the property.
Am I entitled to my earnest money since the loan we originally discussed (3.5% down, no points) was denied? Or, because they are able to get an approval by manipulating the conditions of the loan, am I SOL on my earnest money? Thanks!
First, read your contract. That's going to be the only thing that definitely tells you if you get your earnest money back.
If you were told you were pre-approved at that price range with only 3.5% down and you were given a good faith estimate with your closing costs, and now they're telling you that you have to buy down your rate for your ratios, that means you were not actually pre-approved for that price range, and you should be entitled to your earnest money.
However, if you were told upfront that your rate and fees would be such and such, and you just didn't "get it" and now you realize what the points mean, then no, you would not be entitled to your earnest money back.
If you really want the house, why don't you contact a new mortgage person and see what their opinion is. Maybe the one you're working with is just trying to make some extra money with your points. Get a second opinion before you completely back out.
If it's your ratios - try asking the seller to help with closing costs. There also might be first time home buyer incentives, including the $8,000 from the Fed around to help you.
If 2.5% of the purchase price will kill you financially...Don't buy.
Location: Mokelumne Hill, CA & El Pescadero, BCS MX.
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I agree with 2biD. If you're taking all of your financial assets out of circulation to buy a home, you probably shouldn't.
Also, the 3.5% is the down payment, the points would be considered closing costs, not an additional down payment, although I'm sure when one writes the check to cover, it sure seems like a down payment.
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