Back Out on Buying a New Home?

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I signed paperwork to have a house built that probably isn’t going to be started until late next month and won’t be done until the Nov/December time frame (the builder won’t commit to meeting the 1 Dec deadline for the $ 8K credit, which has me nervous). I paid a $ 2000 deposit and the $ 350 loan appraisal fee. My paperwork went through earlier this week and I qualified for the loan.

Things were good until I got called today about this week’s mortgage rate spike. I’m financing through the builder to take advantage of the incentives offered, and naturally their quotes are running about 1% higher than the bankrate.com average at about 6.25%.

I’m starting to get concerned now. I figured with all the stimulus spending, the FED meddling, and inflationary effects wouldn’t start hitting until I was within 120 days and able to lock without paying fees. Well that’s out the window. All signs point to rates steadily going up for the rest of the year, possibly 7-8% and I wouldn’t rule out double digits.

So the lender offered several lock-in options, one for 2 1/4 points. Now, I just don’t have that money to commit at this time because I’m a full time graduate student and my guaranteed job doesn’t start until mid-August, and I’ve been supporting myself on savings since January and setting a strict budget out to meet expenses and qualify for the home loan and take advantage of the credit.

While I’ve been told that my debt to equity is okay to sustain the rate increases, I’m concerned because when I start my new job, my goal is to try to replenish the savings I’ve lived on as quickly as possible. With just the basic neccessities, at a 6.5 or 7% rate, I feel like I’m going to be barely breaking even based on the salary of the new job. This is not what I exactly had in mind.

So my question is this. They haven’t started building the house yet. I know there’s provisions in the contract that allow me to back-out upon the completion, or if the VA doesn’t appraise the house for at least the purchase price, but what about now?

I thought rates were good, and if I could afford the points to buy down, I probably would, I just don’t have the money at the moment, and will just be starting to once again bring in steady income upon the expected closing.

I know I’ll have to go through the purchase agreement again, but I figure that this has to be something pretty common and that I wasn’t the only one affected by the transactions this week. I really feel bad for the people that thought on Tuesday they were going to get to refinance. That’s just horrible.

PS> The builder is Ryland, if that helps or anyone has experience with them.
Valerie – It’s VA. Not too concerned about the $ 2K, although I’m supposed to also make $ 500 deposits per month for the next 5 months.
I know I signed some form that doesn’t let me transfer the loan.

4 Comments
  1. Reply
    Gorkbark Porkduke Gefunken Fubar
    January 28, 2011 at 7:59 pm

    The thing to worry about more than anything else is the builder going bankrupt halfway through the job and leaving you with a half-completed house. This should be your prime concern, not a couple of percentage points in the rate. I’ve seen what people have had to go through when the builder goes bust and it ain’t pretty. It happened to someone down the street and it took 2 1/2 years to complete the house, with the homeowner ending up doing a lot of it himself, personally.

  2. Reply
    Valerie
    January 28, 2011 at 8:34 pm

    What state are you in? Many real estate laws vary state by state. I’m a real estate broker in NY, and unless one of the conditions that is a contingency in the contract fails to be met, a buyer generally have to forfeit downpayment money to get out of a contract.

    It might be worth your while to have an attorney review the contract and see if there is another out. If you don’t want to walk away from your $ 2000, it also might be possible to assign the contract to another purchaser, who will assume all the conditions and put up the same downpayment. You have to read, or have a professional read, you contract carefully to see if you have a legal out.

    Bright side, if you walk away from your $ 2K, it won’t impact your credit.

  3. Reply
    peter s
    January 28, 2011 at 8:53 pm

    g’day mate
    i own six properties in australia, 1 in Sydney & 5 on gold coast Queensland.we realy stuffed up first up, by not having the right financial advisor.we were paying %10.9 on $ 450,000.now we are paying %5.5 on 1.2 mil,interest only.u have the resources at your fingertip’s,on the net,check out the builder,make sure he’s not a shonk,check out the finance lender to see if they are shonky or not.get the right advice,it’s better to lose a couple a quid than a motza.
    regards
    Kirrakid
    Queensland
    Australia

  4. Reply
    LA
    January 28, 2011 at 9:50 pm

    You can back out and loose your $ 2 K and appraisal fee or you can get your loan through another company. You can also get your $ 8K first time homebuyer credit in advance to help cover the costs of the buydown by making an ammendment to this years taxes.

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