I tried to search the internet but couldn't find the answer. This is my
situation:

I bought a new house (currently in construction, close in 2 monthes) 3
monthes ago. Full documented loan was pre-qualified and contract was
signed with loan contingency. The house is in construction and will be
close in 2 months. However, I recently lost job. The loan agent said I
no longer qualified for the orignal full document loan, but can get no
document loan with much higher rate. With my current financial
situation, that would be too much burden. I talked to the builder's
sales office regarding canceling the contract and get my earnest money
( 10k) back, but they refused and said if I qualified for no doc loan
( NOT the orignal loan that I pre-qualified), then the loan contingency
doesn't apply and I should either close the house or lose earnest
money. This doesn't seems logical and fair to me. In order to get no
document loan, one need to have good credit score. However, in this
situation, my endeavor to maintain good credit become harmful as I have
the "option" and will have to take a different loan with much higher
rate.

Please, anyone has experence on this situation or lawers please shed
some light. Can I back out and get my earnest money back?

Thanks a lot,
Keith

keith wrote:
I tried to search the internet but couldn't find the answer. This is my
situation:

I bought a new house (currently in construction, close in 2 monthes) 3
monthes ago. Full documented loan was pre-qualified and contract was
signed with loan contingency. The house is in construction and will be
close in 2 months. However, I recently lost job. The loan agent said I
no longer qualified for the orignal full document loan, but can get no
document loan with much higher rate. With my current financial
situation, that would be too much burden. I talked to the builder's
sales office regarding canceling the contract and get my earnest money
( 10k) back, but they refused and said if I qualified for no doc loan
( NOT the orignal loan that I pre-qualified), then the loan contingency
doesn't apply and I should either close the house or lose earnest
money. This doesn't seems logical and fair to me. In order to get no
document loan, one need to have good credit score. However, in this
situation, my endeavor to maintain good credit become harmful as I have
the "option" and will have to take a different loan with much higher
rate.

Please, anyone has experence on this situation or lawers please shed
some light. Can I back out and get my earnest money back?

Thanks a lot,
Keith


This depends entirely on what you haven't told us and that is what
specifically does the sales contract say about the loan contigency?
If it just says that it's contingent on you getting a 30yr mortgage at
the prevailing rate, then I'd say you are screwed, because you can get
the mortgage, but at a higher rate.

If I were you, I'd read the contract then talk to a lawyer. Assuming
you can't back out of it, a lot depends on your job prospects and
whether you still really want the house. If you think you will be able
to find a job in a few months at a similar salary and want to stay in
that area, then going ahead with the higher interest loan, would be the
best strategy. You can hold off a month or so too, as you still have
some time. I'd try to avoid points, with the plan to refinance later.

If you know it will be hard to find a job, or now may want to move out
of the area, then if you have no out, the best solution would be to
just lose the deposit. Another factor to consider is the current state
of the housing market. In many places in the US, it has rolled over
the top, with sales softening. I've seen houses here in NJ on the
market for 6 mths, with people lowering prices. There are probably
people sitting around with houses now that they bought a year ago that
they could buy now for less. So, unless this was a spectacular deal,
you may find a similar house a year from now at the same or lower price.

"keith" writes:

I tried to search the internet but couldn't find the answer. This is my
situation:

I bought a new house (currently in construction, close in 2 monthes) 3
monthes ago. Full documented loan was pre-qualified and contract was
signed with loan contingency. The house is in construction and will be
close in 2 months. However, I recently lost job. The loan agent said I
no longer qualified for the orignal full document loan, but can get no
document loan with much higher rate.

Sorry to hear about the job situation--that sucks. :-\

What your loan agent told you is the way things go typically.

With my current financial situation, that would be too much
burden. I talked to the builder's sales office regarding canceling
the contract and get my earnest money ( 10k) back, but they refused
and said if I qualified for no doc loan ( NOT the orignal loan that
I pre-qualified), then the loan contingency doesn't apply and I
should either close the house or lose earnest money.

Get a lawyer NOW. You're right this doesn't make any sense and the
company is trying to screw you. But it wouldn't be the first time a
large builder forced people into a contract that doesn't make any
logical sense.

Please, anyone has experence on this situation or lawers please shed
some light. Can I back out and get my earnest money back?

No one here can possibly tell you that because we're not privvy to the
contract that you signed, nor the laws of your state. Get a real
estate attorney pronto, and all the best of luck to you.

A new job in a timely fashion also makes this problem go away, but
granted that's easier said than done.

Best Regards,
--
Todd H.
http://www.toddh.net/

Todd H. wrote:
"keith" writes:

I tried to search the internet but couldn't find the answer. This is my
situation:

I bought a new house (currently in construction, close in 2 monthes) 3
monthes ago. Full documented loan was pre-qualified and contract was
signed with loan contingency. The house is in construction and will be
close in 2 months. However, I recently lost job. The loan agent said I
no longer qualified for the orignal full document loan, but can get no
document loan with much higher rate.

Sorry to hear about the job situation--that sucks. :-\

What your loan agent told you is the way things go typically.

With my current financial situation, that would be too much
burden. I talked to the builder's sales office regarding canceling
the contract and get my earnest money ( 10k) back, but they refused
and said if I qualified for no doc loan ( NOT the orignal loan that
I pre-qualified), then the loan contingency doesn't apply and I
should either close the house or lose earnest money.

Get a lawyer NOW. You're right this doesn't make any sense and the
company is trying to screw you. But it wouldn't be the first time a
large builder forced people into a contract that doesn't make any
logical sense.

There is no indication here that anyone was forced into anything, nor
that the builder is trying to screw him. He signed a contract to buy a
house of his own free will. You don;t even know what the financing
contigency says.

It's not the builder;s fault that he lost his job is it? Suppose the
builder came to him and said "BTW, my costs have changed unexpectedly
and the house is now going to cost $10K more than what I agreed to in
the contract." Would that be OK?






Please, anyone has experence on this situation or lawers please shed
some light. Can I back out and get my earnest money back?

No one here can possibly tell you that because we're not privvy to the
contract that you signed, nor the laws of your state. Get a real
estate attorney pronto, and all the best of luck to you.

A new job in a timely fashion also makes this problem go away, but
granted that's easier said than done.

Best Regards,
--
Todd H.
http://www.toddh.net/

writes:
There is no indication here that anyone was forced into anything, nor
that the builder is trying to screw him. He signed a contract to buy a
house of his own free will. You don;t even know what the financing
contigency says.

Good point. By forced I mean to say that if you want a given
builder's house, you can either sign their contract or... not get
their house. Those contracts are rarely written with consumer
protection involved.

And keep in mind this is misc.consumers.house, not
alt.builders.apologists so you'll forgive my pro consumer bent here. :-)

It's not the builder;s fault that he lost his job is it? Suppose
the builder came to him and said "BTW, my costs have changed
unexpectedly and the house is now going to cost $10K more than what
I agreed to in the contract." Would that be OK?

The builder is certainly entitled to protecting themselves and their
time to build a house that a buyer might evaporate on, but you and I
both know that those contracts typically stack the cards quite in
favor of the builder, and that the builder is always biased towards a
person closing on the loan whether one can afford it or not.

That doesn't mean the original poster should have to roll over and
accept losing 10k of money without a fight.

It's true the wording of the financing contingency will be where the
rubber meets the road here, and the OP's attorney will quickly get to
the bottom of what real options they have. No one but an attorney
with that contract in front of them can really help the OP here.

Best Regards,
--
Todd H.
http://www.toddh.net/

hope this isn't a dumb question, but could he sell the house? I hear
about people buying condo units and selling them before the units are
ready (usually for a profit). If there is demand for housing, could he
sell it to someone else?

-tmo

"tmo" writes:
hope this isn't a dumb question, but could he sell the house? I hear
about people buying condo units and selling them before the units are
ready (usually for a profit). If there is demand for housing, could he
sell it to someone else?

That is certainly another good option. If he can somehow make the
payments while it's on the market in the event it doesn't sell
quickly, then that'd be a good option if he can net out more than
walking away.

--
Todd H.
http://www.toddh.net/

The original message said that it will still be a couple of months
before the house is finished. Does he need to wait until it's complete
before selling it?

-tmo

Thanks for all the warmhearted replies. Regarding the loan contingency,
the contract states that:
it is contingent upon the ability of purchaser to obtain and provide
seller with written evidence of a first mortgage loan commitment.

There is no mention of the interest rate limit. However, can I dispute
upon first mortgage loan should not be a no-doc loan?

Thanks,
Keith

"keith" writes:

Thanks for all the warmhearted replies. Regarding the loan contingency,
the contract states that:
it is contingent upon the ability of purchaser to obtain and provide
seller with written evidence of a first mortgage loan commitment.

A lawyer can say more authoritatively to your situation, but a
layman's reading here makes me think that's pretty broad. Basically,
if you can get a loan...at any rate, or any terms, it sounds as though
you're contractually bound to buying that property.

Again, I am not a lawyer, and I strongly strongly strongly encourage
you to consult one.

There is no mention of the interest rate limit. However, can I
dispute upon first mortgage loan should not be a no-doc loan?

You can try certainly, but if you think in terms of how these issues
are settled, and look at that contract language, if you were sitting
on a civil jury hearing the builder's case, seeing no wording that
stipulates the type of loan on the executed signed contract by both
parties, would there be any possible way you as a jury member could
find in favor of the buyer given that the judge has ordered you to
rule out any emotional compassion for the plaintiff and focus strictly
on the law and the written contract?

I'm afraid you may be in for an uphill battle and be mentally prepared
to lose any deposit money if you choose to walk from the deal.


Best Regards,
--
Todd H.
http://www.toddh.net/

it is contingent upon the ability of purchaser to obtain and provide
seller with written evidence of a first mortgage loan commitment.



If that's all the contigency clause says, IMO, its; not a very well
written clause. Usually they say the buyer agrees to immediately
apply for a mortgage of a certain amount, make a good faith effort to
secure one, get one at the prevailing rate within a certain time
period, etc.

I'd say as written,. it's somewhat in the buyers favor. Unless the
contract says more about the size of the mortgage or down payment, then
one strategy would be to go for a mortgage with the absolute minimum
down. It doesn't say you have to put 20% down. Find a couple places
that won't give you one period. Even better find a couple that won't
give you one with even 20% down, now that you are unemployed, period.
Is the mortgage company you are dealing with in any way related to the
builder? Does the builder even know who you applied with? If not,
quickly get a couple of outright rejections from other lenders. I
think local banks or s&L's are the place to go. They typically do not
have as aggessive loan programs as will a mortgage broker, who
represents many funding sources.

With rejections in hand, tell the builder via registered letter you are
unemployed now and rejected by 2 lenders. At that point, the only
real comeback would be for them to produce a lender that will give you
a mortgage. Of course if the lender you are working with is one
affiliated with the builder, then this won't work.

And the one thing everyone agrees on is you should consult a lawyer,
ASAP. The quicker you get into action the better. What is the
current market like? If the builder has people waiting to buy, then
he'd gonna let u off a lot easier than if he's got 10 unsold homes.
One reason you need to sort this out quickly is that the more notice
you give the builder, the more time he has to find another buyer. But
I wouldn't tell him anything, until you work out the overall strategy
with a lawyer.