Expert: Connie Wildasinn-Broker,GRI,Realtor® - 10/15/2008

Question
Hello,
I agreed to purchase a home about a month ago. I received approval for a mortgage days before the financial downfall. I did not lock in a mortgage rate because we had no idea of what was about to transpire. Since then the rate has increased over the initial fixed rate I budgeted for. It is now still trending that my mortgage will be higher than initially expected. Closing date is 10/31 & although I am still approved for the loan, I am extremely nervous that the increase in rate will affect my monthly budget vs. income. What are my options for cancelling the contract? I have a real estate agent, but I have not asked her about it yet because I think she will tell me I am stuck with the contract of purchase as a scare tactic. Any insight would be helpful, thank you.

Answer
Hi Kelly,

There are a couple of things to consider before you simply walk away and cancel.  

1. Did you have contingencies for the loan on your purchase?  If so did you release that contingency?  In California it must be released in writing… not sure what your state mandates…

2. How much money is on the line in your good faith deposit that you may be in jeopardy of loosing? I always try to figure out the good and the bad of a decision and then when it comes to money how long to recover or recoup if it is costing me something.  

3. What are the seller’s remedies against you, if you default? Can he come back at you for performance? You say you have your loan? That shows you are qualified to purchase even if you fell the payment is not a stretch to make the bank thinks differently…  

4.  Why was your loan not ‘locked’ with an interest rate? Did you decide to float the interest or did your loan broker/lender?  Do you have any recourse with the lender? Can you get the lender to ‘pay down the interest rate’ to where you were when you started 30 days ago? Most of my loans are better today than 30 days ago, the qualifying is just harder and sometimes requires more money down…  

If your deal is not scheduled to close for 15 more days.. you have a little time on your side to get this worked out… be sure to look at the broad picture, and make sure all parties, your agent, and lender are working on your behalf to get the transaction you agreed to 15 days ago.  

Keep in mind, sometimes it costs more today then you had planned on, but later in hindsight it still would have been the best thing to do… can you replace that deal with an equal or better deal at the end of the day? Are you willing to give up your good faith deposit to make that happen?

Keep in mind this is no fault of the seller, you will owe him money, hopefully in your contract the only liability is the good faith deposit!  But know your options!

I hope this helps let me know how it went!