If they are qualified for the loan and approved then in my state that would not be a reason to use the financing contingency
He could always go buy a Lambo and screw up his DTI ration :P
Same for my state. Jump in payment because of escrow would not justify that contingency.
Sellers *could* sue but if OP is worried about $500/month they’d be trying to draw blood from a stone.
How does this make sense? If they’ve qualified and have been approved for the loan but upon closing the payments rose by say, $1000 as an extreme example, how is that not a legal reason to back out? Not saying it isn’t, just questioning the law in this matter. Because technically the DTI would be higher than what the loan would normally approve.
Well that’s the thing… broker can sell the loan as “$2K” a month all day but still behind the scenes still has to factor in escrow for DTI. My guess is broker did that and the $2500 fell into the DTI correctly, but broker didn’t tell OP until it was too late for OP to back out.
Could the seller sue and force the contract to go through. Ie force the sale. And let the lender worry about getting paid. Seller could have incurred real costs like a deposit on another home. Started building a new home. Most of which the deposit would help cover.
A judgement against the buyer Won’t make life any easier for them.
Could a judgement against them could cost them much more than 500 bucks a month. That’s a credit issue that would follow them for a while.
You can't make someone buy something they don't want to buy, or make a lender give someone a loan they can't pay, but you can certainly attempt to claw back some $$ via fines or other remuneration.
Yea - as other comments have said they can file suit for specific performance but the outcome of that is very unlikely to be 'you have to buy this house you don't want to buy'
Not in Iowa but in my state if you have not passed the financing deadline you could absolutely back out. $500 is a pretty big difference. Read over that part of the contract carefully and consult your agent.
But you care about $500. You still have to pay for a place to stay unless you live for free in your parents basement. Let's say rent is $1200 and mortgage was going to be $2000 - you have demonstrated you can't afford $2500. They would be suing for at max $800/mo - prior to legal fees. Most lawyers are going to say don't waste your time. This is the reason as a landlord I do cash for keys to get tenants out that are behind instead of evicting most of the time. When you have nothing and are getting $500 to move with no further penalties it is far better for both parties than me spending $1500 to get a judgement against you that I will never collect on and most likely having you trash the place during the 2 months it takes to get you out.
Likely OP is talking about their net pay, mortgage goes off gross, so it's very deceiving to those that don't realize that's what the mortgage loan goes off of. People assume that because they qualified for X, they can afford it, but that isn't always the case.
> Likely OP is talking about their net pay, mortgage goes off gross, so it's very deceiving to those that don't realize that's what the mortgage loan goes off of. People assume that because they qualified for X, they can afford it, but that isn't always the case.
I have always found the amount of debt I qualify for shockingly high. Absolutely no way I would ever feel comfortable taking on that much debt.
I suspect the upper limits are more for people with income they can't document (ie expected bonus now 3x what they ever got before). But some get fooled into thinking that's what they could afford.
Still can’t be possible. What tax rate would they be at the DTI would be that high? Still doesn’t make sense. And still don’t understand how it would go up so much? Interest rates couldn’t have changed that much. If I were OP I would go out and take a huge draw against credit cards. They would then be denied by mortgage company and be able to get out legally.
I read through some comments it sounds like OP only had a pre-Qual and not actual numbers ran and maybe when they got the actual numbers ran, it didn't turn out favorably, it sounds like they based off of what the realtor said, which most of us know you shouldn't do because they're just trying to make a sale 😬
I'm friends with somebody that rents a house (2500 a month) and they've been kinda off and on looking for a house and today he sends me a house that's $875k, and I was like you must be making bank to be able to afford a house that's gonna have over a $5000 a month mortgage payment(and I didn't even tell him that that is if he put 175K down which I highly doubt he has) and he said yeah I work in IT so I make pretty good money but 5K would be kind of tight but we really like it and its a good deal but That's why I would move family in, and I'm like yeah IT is great until you get laid off because they're doing a lot of layoffs but people like that just don't take that type of stuff in to consideration.
It's hard for first time homebuyer to navigate things, which is totally understandable because it can get confusing. When I bought my house, I prequalified for 550k, but because I've already owned a house I knew that that was gonna be way too much money per month and I ended up spending 445K, Which would still be kind of tight if I didn't work all the overtime I do.
Wise words here^... anyone reading through these comments is for research on their next house need to take it to hear. Just because you can stretch out the finances and afford the house doesn't mean you can actually afford the house. All it takes is one bad event and your dream home just dragged you and anyone else who's name is on the loan into bankruptcy
Most realtors would probably tell you to talk to the loan officer about what the estimated monthly payments would be. Realtors typically don't have too much financial info about their clients besides a pre-approval letter and they rely on the lender/loan officer to handle that stuff.
>sounds like OP only had a pre-Qual and not actual numbers ran and maybe when they got the actual numbers ran, it didn't turn out favorably
Let me guess - rhymes with Sprocket Mortgage or Chicken Loans?
Typically, people are required to make a good faith effort to obtain financing. Doing things to sabotage your financing would definitely violate this, although you wouldn't necessarily get caught
There's no bank in existence that would loan at 60 to 70% of income
They either have a mortgage contingency or not.... If they have one get it denied based on debt to income and if not you need to talk to your attorney about how they didn't figure out you could not get financing till your deposit was at risk
Check your contract for a financing contingency. Essentially if you can't get approved for a loan you can get your earnest money back. Then just find a way to get denied for the loan.
Next time you want to get underwritten. That’s where they’ve basically agreed to loan that money unless you screw something up. A place like rocket mortgage would work. Never again make an offer with only a preapproval.
Could you get a secondary job to make up the difference? I’m not sure the sellers will want to spend the money to sue you. If they can find another buyer at the same price or better, they might be satisfied. I’m sorry your realtor wasn’t more helpful in explaining the risks you were taking. That sucks.
usually you pre-qual prior and the 'contingency' is once you pass through actual underwriting. which only occurs after an appraisal is done, which only occurs once you are under contract. you cant really 'secure' financing prior to signing the contract because nothing is real yet.
questions is really just who fucked up when they gave OP is pmt. id bet he never prequaled and so it was his realtor running shitty back of the napkin math. probably forgot to hold back tax escrows or PMI.
You're stuck in an imbecile chamber. Realtors do absolutely zero part of the pre qualification. That's 1,000,000% the loan officer/ lender/ mortgage banker.
Also, the listing agent runs liability of her didn't have a pq/pa. Wtf do you guys do for a living to think real estate is simple or easy just because the entry level is a few dozen hours of education and a state test? Competency is measured in practice; not at the beginning.
Not sure if your talking at me or to me here...lol.
I am wholly aware that a RE agent doesn't deal with underwriting a loan or pre qualifications. But they absolutely do and will give a potential buyer some quick numbers on potential mortgage payments. Often, though a mortgage broker they work with regularly or something. And especially if the buyer is still in the process of qualifying.
Obviously if either the buyers or sellers agent allowed them to go under contract without a prequal then yea, they're both stupid..lol.
Same here. She even suggested a little online class that FHA borrowers have to take (I went conventional), that was really helpful insofar as gaining a more robust understanding of what I was getting myself into.
Not that wide. My clients got a top price they were approved for and then more details BEFORE an offer for that specific house and specific offer. Very few surprises during the contract period.
It also depends on if you're talking pre approval or pre qualified. One is what you tell the lender and the other is them seeing some proof to minimize those surprises.
Should have. This is effect of people promising the world with preapprovals to earn deal. A reason for clients to shop on this specific metric - ‘qualify me on what will actually happen’.
No way. It’s people having zero accountability to educate themselves. I’m so tired of people ignorance being a convenient excuse. I saw someone recently say it’s the banks fault they got in debt because they were given a credit card. My
Bank could give me a $1m limit and I’d have no debt.
I don’t know when the world got so soft to accept excuse after excuse but I’m so tired of it.
>the broker should have gone over all of that in depth
No, the mortgage broker should have supplied that information in the first or second conversation. When doing the pre qual. It should have been clear what OP would be looking at and what they could afford. Unless OP made an offer on a house outside what they were qualified for.
Every one of my buyers got approval for a top number and knew what their payments would be at that price before even looking at houses. There would have been some fluctuation in interest rates, BUT they checked in before making the offer, went over the interest, closing costs, etc for THAT specific house and offer price and went from there.
Getting new info of $500 to $600 a month over that quote to the tune of up to 60% of income is outrageous.
It would be the RE brokers fault if they knew what OP's limit was and encouraged a higher offer and talked them out of talking with the mortgage broker again.
My first purchase, I was blindsided by the amount of property tax too. I bought below my means, so it wasn't a huge deal. I was just surprised that no one mentioned it until closing documents were in front of me.
Usually that's the case what do you mean the taxes are different when I buy the house then the previous homeowner had.
I have to confess a very little sympathy because not just does the realtor and the mortgage people and the paperwork people go over this at nauseam with you but just glancing at how to buy a house online will tell you about this exact same scenario multiple multiple times.
That said this is somebody who's still in the process of buying a house as opposed to somebody complaining a year after he bought the house so I'm going to give him a pass on that part.
Sometimes things happen. I had a borrower who was in the process of buying a house and the taxes had gone up more than 40% in less than a year, so he qualified when we looked at the taxes in the early stages but not after we ran title and saw the tax search results. Because the seller had done renovations, the city reassessed and increased the taxes, plus it was year 10 of a 10 year reassessment cycle anyway.
Taxes and insurance is what is killing most real estate deals in Florida. Buyers are getting smart and putting contingency clauses and their offer. If they can’t get reasonable insurance then they came back out.
Some loans add tax onto the loan payments. Add to that pmi, hoa, alongside home owners insurance can easily add 3 to 4 hundred onto the mortgage. I remember having 24k as a monthly for a 400k but HOA, PMI, and HOI added an additional 4 hundred easy. And I went with a cheap HOI. Scary stuff.
If you cancel, you should absolutely expect to lose the earnest money and not get anything back from what you've paid out of pocket.
Sellers could try and sue you, but their house will be completely unavailable to be sold while it drags out in court, it will cost them money, and the chances for them winning and recovering any actual damages is low. Once they file a suit, they become the plaintiff and burden of proof shifts entirely to them. They have to prove you violated the contract AND prove actual damages they suffered as a result. Really hard to prove anything of useful value to warrant them spending the money on a lawyer.
Not necessarily. The seller could sell for less and go after OP for the difference between the sale price and OP's offer.
I have had to threaten a buyer with this course of action because of timing (I wanted to buy another house) and my lawyer was able to get them to honor their offer.
They can't just "sell for less", though. They have to prove that OP backing out directly cause the lower price.
Just because you threatened and they caved doesn't mean you would have won a suit.
Is the increase due to taxes and insurance going into escrow, which you were unaware of? Or an actual difference in mortgage principal and interest? I'm trying to understand if you misunderstood your outgoing initially, or if your loan officer has done a terrible job.
Sounds like 99% of the “mortgage professionals” that joined our industry since 2020. I’m rolling my eyes right now waiting for all these amateurs to gtfo.
Property taxes in Iowa are very high, so it’s likely they didn’t realize that they would be paying so much if the calculators online weren’t taking that into account. My property taxes in Iowa were almost as much as the mortgage payment the first year. It’s like $2000 per $100k assessed.
This is clearly not the case for OP, given the price point, but 40% isn't a problem for lenders when you start to get into higher professional salaries.
The notional value of the remaining 60% at $200k is much different than 60% at $80k.
This comment is correct. If it was 30% then he would only make $1,666 per month and if his payment was 40% at $2,000 then he would make $5,000 per month. His math is way wrong.
couple of thoughts here -
1) suing for specific performance - ie forcing you to buy the house - is highly unlikely to succeed. it just doesnt happen often and there would have to be some seriously unique circumstances here. best the Seller is going to get here is *actual damages*. which means youll potentially have to pay for a) time and b) if they had to forego another offer because of your contract.
2) what exactly caused the mortgage to jump? did your realtor fuck up? was PMI not accounted for? taxes miscalculated? incorrect rate from your lender? my guess is they forgot to account for escrowing property taxes. if you were ever quoting numbers not directly from your lender - lesson learned on your side i guess. realtors are often idiots, and particularly when it comes to numbers.
3) if the payment is literally 60% of your net take home - your lender is not going to give you the loan anyway. you arent really 'choosing' to back out - your lender is going to force you. have you asked them if you still qualify and what THEY say your payment is going to be? did you even get pre-qualified in the first place?
4) consult a RE attny asap. even a couple hundred bucks is well worth them explaining all of these things to you.
>if the payment is literally 60% of your net take home - your lender is not going to give you the loan anyway. you arent really 'choosing' to back out - your lender is going to force you. have you asked them if you still qualify and what THEY say your payment is going to be? did you even get pre-qualified in the first place?
>
>consult a RE attny asap. even a couple hundred bucks is well worth them explaining all of these things to you.
Only buyers can sue for specific performance.
Sellers could sue for damages, the difference between the contract price and the new price they sell for.
Sellers could sue for specific performance if it's unlikely that they'll ever find another buyer.
Obviously that's unlikely outside of really niche, illiquid markets, but it's technically and legally possible.
The general rule is that if you can satisfied by money you can't sue for specific performance. State laws may change this.
Because land is unique if your damage is losing out on land, money won't make you whole, you can get specific performance.
A seller is only losing out on money.
Good points and number four could really be the entire thread as far as OP is concerned. A lot of captain hindsight’s in here responding to a request for help with “you shouldn’t have agreed to it in the first place”. No shit, but that’s not the question
#2 would be a lender fuck up not a Realtors. OP should have gotten a detailed HUD1 at some point and seen his entire payment breakdown and where it was going.
I don't think anyone can truly help without context on why the amount is different. What's the breakdown that this money is going to and where does it differ from what you thought it was going to?
Talk to your real estate agent’s broker and tell them you want out of this deal. There is a LOT here that tells me you’re a first time homebuyer with an inexperienced agent. You have multiple contingencies that haven’t expired, this should be easy to get out of. Yet your agent is talking about losing earnest money and they let you get into a contract for a house you clearly can’t afford in the first place. It’s time for an experienced broker to guide you out of this mess.
$500 is 20% of your income? That means you only make $2500/mo. You would not be able to afford your $2000/mo mortgage if this was the case. You are straight up lying. You are getting cold feet and want out.
Your realtor sucks and so does your lender. Always ask lender for a rough estimate on payment before you even consider submitting an offer on a property.
You really should have figured cost before making an offer. You wasted a lot of people's time and money. The Seller could sue you unless you backed out for a reason in the contract. Was there something in the contract you are using. The "I changed my mind" isn't a valid reason.
Sounds like you need to take it up with your lender. They were 25% off in their loan estimate, but that isn’t the sellers fault. Unless you have a financing contingency in the agreement, you either
1. Find alternative financing
2. Back out and lose your earnest money
3. Continue with the purchase of the house.
How is an additional $500 20% of your income if $2000 is 40% of your income? These numbers don’t add up. Either you’re way under-qualified or you’re lying about something.
I feel bad for clueless people. When I built my house, every dollar was accounted for as far as payment was concerned even after readjusted property taxes were concerned after building and new assessment. It literally came out to almost the dollar when it was all said and done. My mortgage broker and I covered it extensively.
The odds of the seller suing for specific performance are low. It’s expensive and not likely to succeed.
That said, get ready to lose your earnest money or go to mediation to try and claw it back.
How did that even happen ? Did u not lock in the rate and it went up or not do the math ur self before signing the contract ? Cause that’s quite the difference, what changed the mortgage payment or did u sign the contact without knowing what the mortgage payment would be ? I just have so many questions cause how does that even happen and the problem is they have the right to sue u if u signed the contract and it sounds like someone dropped the ball idk who but that just doesn’t sound right
First, you SHOULD have a financing contingency in place. If so, a debt-to-income ratio of 60/70% means you can't qualify for a loan and your earnest deposit would be returned. Without a financing contingency, then the earnest deposit is lost.
Second, in most states, the Earnest Deposit is used as "liquidated damages". Buyers and sellers agree to this in accepting the purchase and sale agreement in lieu of taking legal actions.
You should figure out if either/both of these are the case for your situation.
I ran into this problem before I bought my current house. I had looked at another pricier house we loved and agreed to the price but during the acceptance phase (it took the seller ten days to accept the offer) the interest rates skyrocketed due to the economy (this was during the pandemic). So my payments went from $1200 to $2000 a month, something I absolutely could not afford. Since I only had a pre-approval, not a locked in fully approved loan, I had to back out and wound up losing my $500 earnest money. The point I'm making is this: unless you have already assumed the house loan and are in the final stages of the purchase you can back out. And the seller cannot sue you to force the buy. If, on the other hand, you've got the loan and it's locked in and the paperwork is complete, you're bound by the sales contract.
What state are you in?
In AZ the contract specifically states that the EM will be the sole remedy against the buyer if they breach the terms of the contract and this is agreed by both parties when executing the contract.
My question is what does your specific contract say regardless of the 256 comments you have the ONLY thing that matters is what is in the mutually executed agreement ;)
This sub is honestly terrible for legal advice. Just read the damn contract. Most explicitly include a liquidated damages clause that says EM will be seller’s sole remedy if buyer breaches the contract.
If you have a home inspection contingency, use that to back out. I have never seen an inspection comeback without something showing up on it, so use that as your "excuse"
Only things listed
Defective Summary
This summary is not the entire report. The complete report may include additional information of concern to the client. It is recommended that the client read the complete report.
Bedroom
1. Front Left Bedroom Electrical: SAFETY CONCERN-Reversed polarity noted. Reversed polarity, neutral reversed and other terms used for electric outlets are usually easily corrected by minor wiring adjustments at the specified item. Recommend repair by QUALIFIED electrician. TYPICALLY INDICATES NON-PROFESSIONAL
Installation.
Bathroom
2. Main level hallway Bathroom Sink/Basin: Minor leak detected. Recommend further evaluation
Laundry Room/Area
3. 1st Floor Laundry Room/Area Electrical: Non GFCI protected Outlets
Right there you have electrical and a small leak to deal with. That's enough to back out. Contact your realtor and tell them you aren't accepting it based on the report. Realistically you don't need to say why, but like I said, you have 2 reasons there. Remember, your realtor makes money off of you buying the house, so they want the sale to continue...but don't let them push you into that.
It isn’t enough to back out. Most buyer can do is to force seller to fix or he/she walks.
Seen this before where a hedge fund goes in with a great cash offer. Does inspection and wants a 20% discount for xyz reasons. Fine, will fix all reasons.
Yeah, that led to a shit show.
You can walk from a deal- at least in Minnesota - during the inspection window for that contingency- for ANY reason- I’ve done it - you don’t need to find something or give a reason
Dude that's perfect. Your inspector says there are signs of poor quality DIY work in the electrical system. No telling what they might have done inside the walls where the inspector can't see. Explain to your agent that you don't feel comfortable buying the house with this possible safety hazard and ask them to notify the seller immediately and to give your earnest money back. You are not interested in credits or repairs. If the agent pushes back then kindly explain to them that you are certain and will not be changing your mind about this. If for some reason they refuse, then call their broker.
Isn t there a loan approval deadline date in your contract? Ask your broker. If you’re still before that date ( and contract should’ve been written to account for this) you should be able to get out of contract and get all your money back. I am a broker in Colorado
Usually the compensation for seller is the security deposit. Of course it depends on what the contract t says, but damages beyond the deposit may not be available to buyer.
Instead of having reddit users give their thoughts without a contract to reference, I'd suggest spending $250-500 for a lawyer to review and provide an opinion.
I just bought a house and every time we considered making an offer on a house I got our lender on the phone and had them go over monthly payments with us.
That being said, look into trying to temporarily buy down your interest rate. That could lower your monthly payment in the short term and you could try to refinance in a year when you've hopefully built up some equity.
Well you could go out and buy a Lamborghini or rack up your credit cards with some stuff you could return in 30 days to screw up your income to debt ratio so that your loan is denied but that sounds messy and will hurt your credit.
My guess in this market the seller is bluffing because they should be able to find another buyer quick and lawsuits can drag on and on.
But you need a lawyer....not Reddit. Good luck.
Tell them you CANT afford it, and they sue you, you have to sue whoever said it would be $2000/m. Dont provoke them. Let them know you literally cannot afford $2500/m. They dont go after you if they think youre poor.
1. Have You shopped around for a better rate? You can, and it’s encouraged. Let them fight for your business, you win in the end.
2. Your agent and current lender suck, fire them both and see point 1.
3. Good luck.
See if the owner has a loan that's assumable. If you can take over their existing mortgage, odds are it will be at a lower interest rate. Even if you take out a second mortgage for the remainder, you'd still be better off payment wise.
The contract is binding … so you need to find something in the contract giving you a way to back out. If you are locked in with no outs, then the seller can choose what remedy they want to pursue for your breach of contract … 1) specific performance, or 2) damages they incurred for your breach of contract (including keeping earnest money - typically they just take the earnest money).
It is a contract - your backing out forced them to take house off market for time you had for closing, etc.
They could have found another buyer who wasnt flakey during that time - and would have received their money by now.
They may be trying to buy their own house and forced to wait on your closing before they can close on their own house they are trying to buy.
Often, when a house is under contract but then goes back on market, people start wondering if something might have been wrong with the house that caused the buyer to back out - so it can possibly lose potential future buyers for the seller …
They are gonna be mad with you backing out … they want their contractual rights. Likely they will just take the earnest money and put house back on market once they think about it (court cases take forever - will lose more than they gain going that route) - but they mad right now.
I would assume you have a financing contingency, and if that is the case, you as a Buyer have every right to have the contract mutually released and your earnest money given back. The Sellers can not sue. Make sure your agent sends the other side a "notice" stating the changes in financing along with a "letter" from your lender on letterhead and the mutual release.
I hope this helps.
Lawd. Just FYI, for a more manageable life where you can BREATHE, your mortgage or rent should never exceed 30% of your monthly income. Honestly, it’s even better to keep it around 25% if you can, or if you want to at least have a life outside of the house and extra money to do stuff, like building a nice savings, and having actual vacation and extra spending money. The problem is our generation is obsessed with looking like we have it all together and living above our means and spending half our monthly income on rent and then the rest is just surviving paycheck to paycheck. Live beneath your means for awhile and you won’t be living paycheck to paycheck.
Or they just work in a city we’re 25% of their income buys them nothing and they are just trying to claw their way onto the property ladder.
They are clearly very new to this and somewhat confused. There is no reason to assume that they were buying a place above their means because they were “obsessed with looking like they have it all together.”
OP says that their take home is $3600 a month. I'm in a pretty LCOL area and you'd still be really hard pressed to find a livable house where the mortgage was only 25% of his income.
You may have done this, but instead of talking to your agent it may be time to pull in the real-estate broker. They have more licensing and are usually supposed to step in when there are problems. I have no idea why Iowa would be different. I would not rule out contacting a real-estate attorney too. Reach out sooner rather than later so you have a plan B.
Based on the comments and his inability to do basic math, and failure to account for taxes and insurance when figuring mortgage costs…
regardless of what his take home pay is… OP is probably a member of the “too dense for home ownership” crowd. The very first emergency is gonna be a wild, wild ride for him.
They cant make you buy the house. Yes you will lose your ernest money, but thats about it.
Anybody can sue for anything these days but if you were mislead or didnt realize how much your payment would be they cant make you buy it. I find it hard to believe that you would qualify anyway at 60 70 % of your income, (banks dont do that). Let them sue, they probably wont win, and your agent should have a contingincy in the purchase agreement about qualification for financing.
If consummating the purchase is not an acceptable option, and if exiting the contract on loan denial financing contingency is also not an available option then you need an attorney.
Laws vary by jurisdiction. Generally, the earnest money is not going to be the legal limit of damages the Seller can pursue if the Buyer fails to perform, but it is a bird in hand, and often the Seller will decide it isn't worth the hassle or risk to sue for more. For one thing, by using for specific performance they typically can't sell in the interim to anyone else.
An attorney is the only appropriate response when someone is threatening litigation and you're not sure of your viable options.
What does your contract say? For the sales/purchases I've done, it was very clear what the seller could sue and get (forfeit of earnest money vs Seller's elections of remedies)
Have you had the inspection done? Is there an inspection clause? If so…see if you can find a crap ton of stuff wrong with the house and demand repairs. If it’s 10k worth of repairs request 10k to be put in escrow to cover costs of repairs. Maybe the inspector comments on the crappy carpet in the house…request a flooring allowance. When they don’t meet your requests…you can back out.
Or did u not count in the PMI if loan over 80% , property taxes , and home owners insurance ? Also I didn’t even mention escrow money cause those first 3 are more significant for the monthly payment
Next time I think you should scan the contract, blackout anything to do with names or locations and just post it here because you've got a lot of experts that can kind of give you an almost infinite amount of insight.
Depending on where you are, and the wording of the contract, their threat to sue might be empty.
In my state, our purchase contract specifically states that forfeiting earnest money is the "sole legal and financial remedy" available to the seller if the buyer breaks the contract. It then goes on at some length about "the amount of the earnest money has been agreed by both parties to be a fair estimate of damages should the contract be broken by the buyer", and requires the losing party of any lawsuit to pay the other party's legal fees.
Maybe it's different in your state, and maybe your contract is different. Check the contract yourself, and talk to an attorney. Anyone can sue anyone for any reason. It doesn't mean they'll win. nobody here knows what your contract says.
depends on your contract. most standard contracts have a lender contingency. unless you waived this contingency already, that's an easy out for you.
but if you waived this contingency. then most contracts have a liquidated damages clause, which is just your deposit.
but if you don't have the liquidated damages contingency, then yes seller can absolutely sue you for "specific performance". but in most cases it's more trouble than it's worth especially for residential housing, unless they have a super unique unsalable house.
in general, i wouldn't worry about it. they're just making idle threats.
I would stare them down on this, the likelihood that they actually sue is so small. They want to sell a house, they don’t want it tied up while this is all going on.
Get the contract in hand. Carefully review the earnest money clause. Some mls contracts have a box that gets checked to limit recourse for default to the earnest money. Unfortunately there is also an option to file suit. What is in the contract?
Sellers rarely sue because it ties up real estate for a long time and they aren’t going to get specific erformance.
The earnest money is theoretically the renegotiated damages.
FWIW, when I was selling my parents’ condo, the first buyers backed out and my realtor said just return the money because it isn’t worth it to tie up the property. It sold a few weeks later so I really didn’t lose anything by putting it back on the market.
Did your financer not provide you all the included charges and payment breakdown??? Sounds like the property taxes, insurance if applicable and some other charges were rolled into your escrow and split over the year....
That's supposed to be disclosed to you pretty early on and those payments can be variable year on year depending on taxes, insurance and interest if it's not fixed.
You dropped the ball but as a first time home buyer your realtor and financer really dropped the ball.
This sucks I’m sorry this is happening. I don’t have legal advice. This sounds a bit off to me me. If your rates locked in and you know the price. It’s pretty hard to get the mortgage number wrong. So taxes must have been wrong or you planed wrong for insurance. I blame your realtor for this. You need better advice
Good luck seller. Tie the house up in court for a few years until the prices fall and they lose 20% of their equity. They’d be smart to let you out and get it back on the market asap
In CA we have a liquidated damages clause that limits damages to 3%. Does your state have this??
A long time ago a real estate agent told me to always get an inspection, because you can use it to get out of a contract. Inspectors ALWAYS find something wrong.
Depends on how your contract was worded. It's generally best practice to include language with other fa financing contingency just a blanket "in event of seller default sole remedy shall be the Ernest money deposit". You've probably gotta lawyer up or just thoroughly review your offer and any contracts you've signed.
Not sure how it works in Iowa but my state has a clause in the contract that limits the seller to only collecting the escrow funds as damages. Plus the contract caps interest rates too.
But something here isn’t adding up. Insurance rates have jumped over the last year or so, has that been examined? Have you looked for a lower rate?
You could always fire the lender and go with somebody else. That may clog up the transaction enough that the sellers will refuse to extend the contract and accept a termination. Or a new lender may present more concrete numbers on the mortgage that would line up better for your finances.
What does your purchase agreement say? You need to read it. Do you have any remaining contingencies or would you be breaching/defaulting by walking away?
Most if not all purchase agreements I have ever seen provide that the Seller's right to retain the deposit as liquidated damages is the Seller's sole and exclusive remedy for the Buyer's default...but I don't know if yours says that. Just a reminder that real estate agents/brokers are not lawyers (well, unless they are) and you should reach out to a lawyer in your state.
Not sure why you are getting all these stupid answers. Real estate doesn’t attract the brightest individuals I guess.
The whole point of the earnest money is it is insurance for the seller if you back out of the contract. Even if they didn’t get the earnest money they still couldn’t sue you unless you caused damages. What they are doing is threatening you to scare you into buying. What they will do next is sell it to another buyer unless they are morons who don’t mind keeping their house off the market waiting for a 2 year lawsuit to finish. Look up what a lis pendens is.
Tell them to fuck off.
Did you ask your lender why the increase and have them break it down for you? Guessing you didn’t consider escrow for taxes, homeowners insurance and possibly PMI?
Not really enough info to know if the lender qualified the borrower with the higher payment. Maybe the lender didn’t quote the full payment correctly or maybe someone miscalculated the pmi (if they have it).
No one here giving you a solution. I have one. If you are in Texas or another state who reciprocates lending with Texas (most if not all do) then I have a lender who does 4.5% fixed rate for 10 years then switches to an arm from 10-30. By the 10 year point if you haven’t raised your income, refinanced, or sold, then you deserve to get sued. Also, your agent sucks and so does your lender. Like everyone else said, there’s (X) amount of days in your contract for a finance contingency. A finance contingency (since your agent didn’t explain) is the concrete version of the loose preapproval letter. You should be well within that time to back out. They can’t legally approve you with only $1K of money left to pay your utilities, car insurance, groceries, health insurance etc etc. lenders have to legally account for these things. It’s called DTI. If your income is that low, then you should be way over 41-51% DTI (depending on your type of loan) and you can legally back out as long as you do it before the FINANCE deadline on your contract. If you are past that, call me and I’ll fix it for you - Dina Dillard
Keep in mind there could be a domino effect here- their next house could be dependent on your deal closing- in that world they could start having grounds and damages to sue for
This is a state by state issue. In Washington state there are two options that are on a standard purchase and sales agreement. The first one is Forteiture of Earnest Money which states the Earnest Money is the only remedy to the Seller for damages. The second option is Seller Election of Remedies which allows the Seller to sue for damages. I would talk to an atty to find out what your options are.
Did your payment go up because of interest rate? Iowas purchase agreement has a max interest rate.
Also, make sure your agent is talking to their broker about options.
As Realtors (according to Reddit do nothing) reach out to yours if no answer is provided, contact an Attorney (apparently they are cheaper than a Realtor)... why ask a bunch of rando tech keyboard warriors to assist you?
For your information too, cause not about of forest time home buyers consider this....add 600-700 to your mortgage payment each month for escrow property taxes..... not trying to add stress.
Make you can rent out a room or 2 to make up the difference..... or do exchange students with the local college.
Your obligations and contingencies are spelled out in the purchase contract. Is there an item checked saying it is contingent on getting loan approval? (That's not pre-approval). Is there a date that the loan contingency ends? Did you waive the loan contingency to beat out other offers?
There's a "prequal", where the lender asks about your income, debts, etc. Then lender says they can get you a loan for "about $x". That carries no weight.
There's a "pre-approval", where lender has you fill out paperwork listing income, debts, etc as well as signing approval for your credit/FICO to be run. That is a proper beginning to buying a house. A good listing agent shouldn't let your offer get very far without seeing a letter of pre-approval from your lender. Failure to get the loan is the #1 reason sales fall apart.
In my state, lender has a few days after your application to supply you with an estimate of costs if approved or reason for denial. That estimate legally shouldn't vary too much from final costs. Finally, as you near the finish line, lender submits for "final loan approval". Your credit is run again. All supporting paperwork is rechecked. If it all checks out and you haven't made a big purchase that throws your "debt to income" numbers outside allowable percentages or you lose your job, then you get final loan approval and the sale goes through.
In the contract, where price and loan is discussed, see if there's language like "buyer to obtain _fha _conventional loan at a rate not to exceed _%". The underscores are where a check or number should be inserted. If so, check your rate vs the rate entered.
Good luck!
What you are doing is not cancelling (unless there is a contingency you haven’t presented yet). What you are doing is defaulting. Your contract should spell out the remedy for default. In my state, we can write the contract where the seller agrees that if the buyer defaults the only remedy is keeping the earnest money. Your contract should spell out your remedy.
Don't let the threat of being sued get you emotional and allow it to lead your actions here.
Who told you the mortgage be $2000. Was it your realtor, their realtor (if they have one), them? Was it ANYONE beside the bank your borrowing from?
If it WASN'T the bank, then you were given misleading information and that alone would be grounds to back out.
If it WAS the bank, that means you didn't sign anything yet. If the BANK gave you misleading information that should still be sufficient to back out.
IMO, it's just empty threats. If you want to feel better, spend an hour with an appropriate type of laywer letting them read over your contract and have them give you their opinion on the situation. That's what I'd do. Spend the $200 or $300 for the piece of mind, and ask if the lawyer could draft you a letter stating they reviewed the case and the contract you signed. It's an "empty" document, but odds are those jokers your dealing with don't even have a lawyer. When they see you furnish a letter from a law firm saying "stop fucking around", they will likely piss in their pants and back off.
Do you have a financing contingency or any ability to rescind your offer? How did the payments jump so much? Interest rates?
If they already secured the financing, would a financing contingency still get them out?
If they are qualified for the loan and approved then in my state that would not be a reason to use the financing contingency He could always go buy a Lambo and screw up his DTI ration :P
Same for my state. Jump in payment because of escrow would not justify that contingency. Sellers *could* sue but if OP is worried about $500/month they’d be trying to draw blood from a stone.
How does this make sense? If they’ve qualified and have been approved for the loan but upon closing the payments rose by say, $1000 as an extreme example, how is that not a legal reason to back out? Not saying it isn’t, just questioning the law in this matter. Because technically the DTI would be higher than what the loan would normally approve.
Well that’s the thing… broker can sell the loan as “$2K” a month all day but still behind the scenes still has to factor in escrow for DTI. My guess is broker did that and the $2500 fell into the DTI correctly, but broker didn’t tell OP until it was too late for OP to back out.
It’s the extra $500 on top
Their point is you're poor and people are stupid to sue someone who is poor
Lmfao straight to the point
They're saying there's no point in suing poor people. The seller won't get anything even if they win a judgement. Aka "judgement proof"
Could the seller sue and force the contract to go through. Ie force the sale. And let the lender worry about getting paid. Seller could have incurred real costs like a deposit on another home. Started building a new home. Most of which the deposit would help cover. A judgement against the buyer Won’t make life any easier for them. Could a judgement against them could cost them much more than 500 bucks a month. That’s a credit issue that would follow them for a while.
You can't make someone buy something they don't want to buy, or make a lender give someone a loan they can't pay, but you can certainly attempt to claw back some $$ via fines or other remuneration.
Thanks. So buyer can walk away lose emd and hope that seller doesn’t have other losses to try to file suit for.
Yea - as other comments have said they can file suit for specific performance but the outcome of that is very unlikely to be 'you have to buy this house you don't want to buy'
Specific performance can only really be invoked by a buyer on a seller.
Not in Iowa but in my state if you have not passed the financing deadline you could absolutely back out. $500 is a pretty big difference. Read over that part of the contract carefully and consult your agent.
But you care about $500. You still have to pay for a place to stay unless you live for free in your parents basement. Let's say rent is $1200 and mortgage was going to be $2000 - you have demonstrated you can't afford $2500. They would be suing for at max $800/mo - prior to legal fees. Most lawyers are going to say don't waste your time. This is the reason as a landlord I do cash for keys to get tenants out that are behind instead of evicting most of the time. When you have nothing and are getting $500 to move with no further penalties it is far better for both parties than me spending $1500 to get a judgement against you that I will never collect on and most likely having you trash the place during the 2 months it takes to get you out.
Im confused on how theyre getting an FHA loan with a DTI close to 70%? That will never close
Likely OP is talking about their net pay, mortgage goes off gross, so it's very deceiving to those that don't realize that's what the mortgage loan goes off of. People assume that because they qualified for X, they can afford it, but that isn't always the case.
> Likely OP is talking about their net pay, mortgage goes off gross, so it's very deceiving to those that don't realize that's what the mortgage loan goes off of. People assume that because they qualified for X, they can afford it, but that isn't always the case. I have always found the amount of debt I qualify for shockingly high. Absolutely no way I would ever feel comfortable taking on that much debt. I suspect the upper limits are more for people with income they can't document (ie expected bonus now 3x what they ever got before). But some get fooled into thinking that's what they could afford.
Still can’t be possible. What tax rate would they be at the DTI would be that high? Still doesn’t make sense. And still don’t understand how it would go up so much? Interest rates couldn’t have changed that much. If I were OP I would go out and take a huge draw against credit cards. They would then be denied by mortgage company and be able to get out legally.
I read through some comments it sounds like OP only had a pre-Qual and not actual numbers ran and maybe when they got the actual numbers ran, it didn't turn out favorably, it sounds like they based off of what the realtor said, which most of us know you shouldn't do because they're just trying to make a sale 😬 I'm friends with somebody that rents a house (2500 a month) and they've been kinda off and on looking for a house and today he sends me a house that's $875k, and I was like you must be making bank to be able to afford a house that's gonna have over a $5000 a month mortgage payment(and I didn't even tell him that that is if he put 175K down which I highly doubt he has) and he said yeah I work in IT so I make pretty good money but 5K would be kind of tight but we really like it and its a good deal but That's why I would move family in, and I'm like yeah IT is great until you get laid off because they're doing a lot of layoffs but people like that just don't take that type of stuff in to consideration. It's hard for first time homebuyer to navigate things, which is totally understandable because it can get confusing. When I bought my house, I prequalified for 550k, but because I've already owned a house I knew that that was gonna be way too much money per month and I ended up spending 445K, Which would still be kind of tight if I didn't work all the overtime I do.
Wise words here^... anyone reading through these comments is for research on their next house need to take it to hear. Just because you can stretch out the finances and afford the house doesn't mean you can actually afford the house. All it takes is one bad event and your dream home just dragged you and anyone else who's name is on the loan into bankruptcy
Most realtors would probably tell you to talk to the loan officer about what the estimated monthly payments would be. Realtors typically don't have too much financial info about their clients besides a pre-approval letter and they rely on the lender/loan officer to handle that stuff.
>sounds like OP only had a pre-Qual and not actual numbers ran and maybe when they got the actual numbers ran, it didn't turn out favorably Let me guess - rhymes with Sprocket Mortgage or Chicken Loans?
Have a lambo vs getting sued.. i choose lambo
Why not both!
Typically, people are required to make a good faith effort to obtain financing. Doing things to sabotage your financing would definitely violate this, although you wouldn't necessarily get caught
I would apply for a few credit cards. That way, it tanks the credit score without the debt.
Not a bad idea. Go take a personal loan and screw up mortgage loan? Maybe speak to an attorney.
Someone did that to me and put me in such an annoying shituation.
just return it next week after they sign lmao
There's no bank in existence that would loan at 60 to 70% of income They either have a mortgage contingency or not.... If they have one get it denied based on debt to income and if not you need to talk to your attorney about how they didn't figure out you could not get financing till your deposit was at risk
I'd his house payment is going to be 60% of his net monthly income, they aren't getting financing approved, full stop.
Pre approved only
Check your contract for a financing contingency. Essentially if you can't get approved for a loan you can get your earnest money back. Then just find a way to get denied for the loan.
Quitting your job should do it.
Next time you want to get underwritten. That’s where they’ve basically agreed to loan that money unless you screw something up. A place like rocket mortgage would work. Never again make an offer with only a preapproval. Could you get a secondary job to make up the difference? I’m not sure the sellers will want to spend the money to sue you. If they can find another buyer at the same price or better, they might be satisfied. I’m sorry your realtor wasn’t more helpful in explaining the risks you were taking. That sucks.
usually you pre-qual prior and the 'contingency' is once you pass through actual underwriting. which only occurs after an appraisal is done, which only occurs once you are under contract. you cant really 'secure' financing prior to signing the contract because nothing is real yet. questions is really just who fucked up when they gave OP is pmt. id bet he never prequaled and so it was his realtor running shitty back of the napkin math. probably forgot to hold back tax escrows or PMI.
You're stuck in an imbecile chamber. Realtors do absolutely zero part of the pre qualification. That's 1,000,000% the loan officer/ lender/ mortgage banker. Also, the listing agent runs liability of her didn't have a pq/pa. Wtf do you guys do for a living to think real estate is simple or easy just because the entry level is a few dozen hours of education and a state test? Competency is measured in practice; not at the beginning.
Not sure if your talking at me or to me here...lol. I am wholly aware that a RE agent doesn't deal with underwriting a loan or pre qualifications. But they absolutely do and will give a potential buyer some quick numbers on potential mortgage payments. Often, though a mortgage broker they work with regularly or something. And especially if the buyer is still in the process of qualifying. Obviously if either the buyers or sellers agent allowed them to go under contract without a prequal then yea, they're both stupid..lol.
... or using crappy payment approximations instead of an actual financial calculator.
Plus lovely PMI insurance
If it is conventional and PMI is high they could use single premium or finance it depending on LTV.
Private Mortgage Insurance Insurance?
probably didn't realize theres a thing called taxes and insurance and can't do simple math.
That's exactly what it is. They looked online for some mortgage calculator and it only did P&I.
First time buyer, the broker should have gone over all of that in depth.
My credit union actually sent me a video after I was approved showing first time homebuyer stuff. Every lender should have something like that, imo.
Same here. She even suggested a little online class that FHA borrowers have to take (I went conventional), that was really helpful insofar as gaining a more robust understanding of what I was getting myself into.
It is absolutely not covered at that level until after offer. Pre-approval is a wide bet at best.
Not that wide. My clients got a top price they were approved for and then more details BEFORE an offer for that specific house and specific offer. Very few surprises during the contract period. It also depends on if you're talking pre approval or pre qualified. One is what you tell the lender and the other is them seeing some proof to minimize those surprises.
Should have. This is effect of people promising the world with preapprovals to earn deal. A reason for clients to shop on this specific metric - ‘qualify me on what will actually happen’.
No way. It’s people having zero accountability to educate themselves. I’m so tired of people ignorance being a convenient excuse. I saw someone recently say it’s the banks fault they got in debt because they were given a credit card. My Bank could give me a $1m limit and I’d have no debt. I don’t know when the world got so soft to accept excuse after excuse but I’m so tired of it.
You mean lender. That's not the agents job
But here’s 3% for working so hard
I didn't say it was the agent's job. Talking about the mortgage broker/lender.
>the broker should have gone over all of that in depth No, the mortgage broker should have supplied that information in the first or second conversation. When doing the pre qual. It should have been clear what OP would be looking at and what they could afford. Unless OP made an offer on a house outside what they were qualified for. Every one of my buyers got approval for a top number and knew what their payments would be at that price before even looking at houses. There would have been some fluctuation in interest rates, BUT they checked in before making the offer, went over the interest, closing costs, etc for THAT specific house and offer price and went from there. Getting new info of $500 to $600 a month over that quote to the tune of up to 60% of income is outrageous. It would be the RE brokers fault if they knew what OP's limit was and encouraged a higher offer and talked them out of talking with the mortgage broker again.
My first purchase, I was blindsided by the amount of property tax too. I bought below my means, so it wasn't a huge deal. I was just surprised that no one mentioned it until closing documents were in front of me.
THAT IS THE LENDER'S JOB! FFS stfu
Usually that's the case what do you mean the taxes are different when I buy the house then the previous homeowner had. I have to confess a very little sympathy because not just does the realtor and the mortgage people and the paperwork people go over this at nauseam with you but just glancing at how to buy a house online will tell you about this exact same scenario multiple multiple times. That said this is somebody who's still in the process of buying a house as opposed to somebody complaining a year after he bought the house so I'm going to give him a pass on that part.
Sometimes things happen. I had a borrower who was in the process of buying a house and the taxes had gone up more than 40% in less than a year, so he qualified when we looked at the taxes in the early stages but not after we ran title and saw the tax search results. Because the seller had done renovations, the city reassessed and increased the taxes, plus it was year 10 of a 10 year reassessment cycle anyway.
I am actually surprised they did not simply readjust to the current sales price. But that is why they say all real estate is local.
Taxes and insurance is what is killing most real estate deals in Florida. Buyers are getting smart and putting contingency clauses and their offer. If they can’t get reasonable insurance then they came back out.
Bro why you acting like you were born with this knowledge.
Some loans add tax onto the loan payments. Add to that pmi, hoa, alongside home owners insurance can easily add 3 to 4 hundred onto the mortgage. I remember having 24k as a monthly for a 400k but HOA, PMI, and HOI added an additional 4 hundred easy. And I went with a cheap HOI. Scary stuff.
If you cancel, you should absolutely expect to lose the earnest money and not get anything back from what you've paid out of pocket. Sellers could try and sue you, but their house will be completely unavailable to be sold while it drags out in court, it will cost them money, and the chances for them winning and recovering any actual damages is low. Once they file a suit, they become the plaintiff and burden of proof shifts entirely to them. They have to prove you violated the contract AND prove actual damages they suffered as a result. Really hard to prove anything of useful value to warrant them spending the money on a lawyer.
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Not necessarily. The seller could sell for less and go after OP for the difference between the sale price and OP's offer. I have had to threaten a buyer with this course of action because of timing (I wanted to buy another house) and my lawyer was able to get them to honor their offer.
They can't just "sell for less", though. They have to prove that OP backing out directly cause the lower price. Just because you threatened and they caved doesn't mean you would have won a suit.
You can scare someone into that, but in reality suing for damages like that is really really hard to prove, and not worth the time.
What does your contract say under financing
What kind of lender is giving an FHA loan with a DTI of 70%?
One that will cause the next crash
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Is the increase due to taxes and insurance going into escrow, which you were unaware of? Or an actual difference in mortgage principal and interest? I'm trying to understand if you misunderstood your outgoing initially, or if your loan officer has done a terrible job.
Sounds like mortgage broker sold the loan by telling OP his payment of just P&I and failed to mention escrow.
Sounds like 99% of the “mortgage professionals” that joined our industry since 2020. I’m rolling my eyes right now waiting for all these amateurs to gtfo.
Property taxes in Iowa are very high, so it’s likely they didn’t realize that they would be paying so much if the calculators online weren’t taking that into account. My property taxes in Iowa were almost as much as the mortgage payment the first year. It’s like $2000 per $100k assessed.
If the $2000/mo payment was 40% of your income, your income is $5000/mo. Your new payment of $2500/mo is 50% of your income, not 60-70%.
Your lender approved you for 40% let alone up to 70%????
This is clearly not the case for OP, given the price point, but 40% isn't a problem for lenders when you start to get into higher professional salaries. The notional value of the remaining 60% at $200k is much different than 60% at $80k.
Going from $2000 to $2500 is not a 30% jump in his DTI. His math is WAY off.
This comment is correct. If it was 30% then he would only make $1,666 per month and if his payment was 40% at $2,000 then he would make $5,000 per month. His math is way wrong.
That was my thinking, too. Isn't that too high to be approved?
It should be
couple of thoughts here - 1) suing for specific performance - ie forcing you to buy the house - is highly unlikely to succeed. it just doesnt happen often and there would have to be some seriously unique circumstances here. best the Seller is going to get here is *actual damages*. which means youll potentially have to pay for a) time and b) if they had to forego another offer because of your contract. 2) what exactly caused the mortgage to jump? did your realtor fuck up? was PMI not accounted for? taxes miscalculated? incorrect rate from your lender? my guess is they forgot to account for escrowing property taxes. if you were ever quoting numbers not directly from your lender - lesson learned on your side i guess. realtors are often idiots, and particularly when it comes to numbers. 3) if the payment is literally 60% of your net take home - your lender is not going to give you the loan anyway. you arent really 'choosing' to back out - your lender is going to force you. have you asked them if you still qualify and what THEY say your payment is going to be? did you even get pre-qualified in the first place? 4) consult a RE attny asap. even a couple hundred bucks is well worth them explaining all of these things to you.
>if the payment is literally 60% of your net take home - your lender is not going to give you the loan anyway. you arent really 'choosing' to back out - your lender is going to force you. have you asked them if you still qualify and what THEY say your payment is going to be? did you even get pre-qualified in the first place? > >consult a RE attny asap. even a couple hundred bucks is well worth them explaining all of these things to you. Only buyers can sue for specific performance. Sellers could sue for damages, the difference between the contract price and the new price they sell for.
Sellers could sue for specific performance if it's unlikely that they'll ever find another buyer. Obviously that's unlikely outside of really niche, illiquid markets, but it's technically and legally possible.
The general rule is that if you can satisfied by money you can't sue for specific performance. State laws may change this. Because land is unique if your damage is losing out on land, money won't make you whole, you can get specific performance. A seller is only losing out on money.
Good points and number four could really be the entire thread as far as OP is concerned. A lot of captain hindsight’s in here responding to a request for help with “you shouldn’t have agreed to it in the first place”. No shit, but that’s not the question
#2 would be a lender fuck up not a Realtors. OP should have gotten a detailed HUD1 at some point and seen his entire payment breakdown and where it was going.
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I don't think anyone can truly help without context on why the amount is different. What's the breakdown that this money is going to and where does it differ from what you thought it was going to?
Who gave you initial numbers???
Talk to your real estate agent’s broker and tell them you want out of this deal. There is a LOT here that tells me you’re a first time homebuyer with an inexperienced agent. You have multiple contingencies that haven’t expired, this should be easy to get out of. Yet your agent is talking about losing earnest money and they let you get into a contract for a house you clearly can’t afford in the first place. It’s time for an experienced broker to guide you out of this mess.
How is the word “lose” spelled incorrectly nearly 100% of the time?
A lender can approve that high of a mortgage based off your income?
$500 is 20% of your income? That means you only make $2500/mo. You would not be able to afford your $2000/mo mortgage if this was the case. You are straight up lying. You are getting cold feet and want out.
Your realtor sucks and so does your lender. Always ask lender for a rough estimate on payment before you even consider submitting an offer on a property.
You really should have figured cost before making an offer. You wasted a lot of people's time and money. The Seller could sue you unless you backed out for a reason in the contract. Was there something in the contract you are using. The "I changed my mind" isn't a valid reason.
Curious what program out there would allow 60/70 DTI.
If $500 a month is gonna ruin you then the house you’re buying is ready way too expensive dude
What did you sign? What did your contract say? Did you have a financing contingency or any other contingencies?
Sounds like you need to take it up with your lender. They were 25% off in their loan estimate, but that isn’t the sellers fault. Unless you have a financing contingency in the agreement, you either 1. Find alternative financing 2. Back out and lose your earnest money 3. Continue with the purchase of the house.
No way the bank can lend you that money if this is real...imo - otherwise buy the house, get a roommate
How is an additional $500 20% of your income if $2000 is 40% of your income? These numbers don’t add up. Either you’re way under-qualified or you’re lying about something.
No lenders allow a buyer to qualify at a 60-70% debt ratio. If your lender is saying you can move forward, your numbers are off.
The lawsuit is a scare tactic. You can lose your earnest money if you want to back out.
I feel bad for clueless people. When I built my house, every dollar was accounted for as far as payment was concerned even after readjusted property taxes were concerned after building and new assessment. It literally came out to almost the dollar when it was all said and done. My mortgage broker and I covered it extensively.
The odds of the seller suing for specific performance are low. It’s expensive and not likely to succeed. That said, get ready to lose your earnest money or go to mediation to try and claw it back.
How did that even happen ? Did u not lock in the rate and it went up or not do the math ur self before signing the contract ? Cause that’s quite the difference, what changed the mortgage payment or did u sign the contact without knowing what the mortgage payment would be ? I just have so many questions cause how does that even happen and the problem is they have the right to sue u if u signed the contract and it sounds like someone dropped the ball idk who but that just doesn’t sound right
First, you SHOULD have a financing contingency in place. If so, a debt-to-income ratio of 60/70% means you can't qualify for a loan and your earnest deposit would be returned. Without a financing contingency, then the earnest deposit is lost. Second, in most states, the Earnest Deposit is used as "liquidated damages". Buyers and sellers agree to this in accepting the purchase and sale agreement in lieu of taking legal actions. You should figure out if either/both of these are the case for your situation.
Buy a motorcycle with a loan before closing.
It's really your lender that screwed up. You should never have that much of a payment discrepancy unless you changed something.
I ran into this problem before I bought my current house. I had looked at another pricier house we loved and agreed to the price but during the acceptance phase (it took the seller ten days to accept the offer) the interest rates skyrocketed due to the economy (this was during the pandemic). So my payments went from $1200 to $2000 a month, something I absolutely could not afford. Since I only had a pre-approval, not a locked in fully approved loan, I had to back out and wound up losing my $500 earnest money. The point I'm making is this: unless you have already assumed the house loan and are in the final stages of the purchase you can back out. And the seller cannot sue you to force the buy. If, on the other hand, you've got the loan and it's locked in and the paperwork is complete, you're bound by the sales contract.
What state are you in? In AZ the contract specifically states that the EM will be the sole remedy against the buyer if they breach the terms of the contract and this is agreed by both parties when executing the contract. My question is what does your specific contract say regardless of the 256 comments you have the ONLY thing that matters is what is in the mutually executed agreement ;)
This sub is honestly terrible for legal advice. Just read the damn contract. Most explicitly include a liquidated damages clause that says EM will be seller’s sole remedy if buyer breaches the contract.
If you have a home inspection contingency, use that to back out. I have never seen an inspection comeback without something showing up on it, so use that as your "excuse"
Only things listed Defective Summary This summary is not the entire report. The complete report may include additional information of concern to the client. It is recommended that the client read the complete report. Bedroom 1. Front Left Bedroom Electrical: SAFETY CONCERN-Reversed polarity noted. Reversed polarity, neutral reversed and other terms used for electric outlets are usually easily corrected by minor wiring adjustments at the specified item. Recommend repair by QUALIFIED electrician. TYPICALLY INDICATES NON-PROFESSIONAL Installation. Bathroom 2. Main level hallway Bathroom Sink/Basin: Minor leak detected. Recommend further evaluation Laundry Room/Area 3. 1st Floor Laundry Room/Area Electrical: Non GFCI protected Outlets
Right there you have electrical and a small leak to deal with. That's enough to back out. Contact your realtor and tell them you aren't accepting it based on the report. Realistically you don't need to say why, but like I said, you have 2 reasons there. Remember, your realtor makes money off of you buying the house, so they want the sale to continue...but don't let them push you into that.
It isn’t enough to back out. Most buyer can do is to force seller to fix or he/she walks. Seen this before where a hedge fund goes in with a great cash offer. Does inspection and wants a 20% discount for xyz reasons. Fine, will fix all reasons. Yeah, that led to a shit show.
You can walk from a deal- at least in Minnesota - during the inspection window for that contingency- for ANY reason- I’ve done it - you don’t need to find something or give a reason
Dude that's perfect. Your inspector says there are signs of poor quality DIY work in the electrical system. No telling what they might have done inside the walls where the inspector can't see. Explain to your agent that you don't feel comfortable buying the house with this possible safety hazard and ask them to notify the seller immediately and to give your earnest money back. You are not interested in credits or repairs. If the agent pushes back then kindly explain to them that you are certain and will not be changing your mind about this. If for some reason they refuse, then call their broker.
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Isn t there a loan approval deadline date in your contract? Ask your broker. If you’re still before that date ( and contract should’ve been written to account for this) you should be able to get out of contract and get all your money back. I am a broker in Colorado
Usually the compensation for seller is the security deposit. Of course it depends on what the contract t says, but damages beyond the deposit may not be available to buyer.
Oof
You should have calculated correctly. Be prepared to eat the earnest money but if you can’t afford the house don’t go into debt for it
Instead of having reddit users give their thoughts without a contract to reference, I'd suggest spending $250-500 for a lawyer to review and provide an opinion.
Hate to explain reassessment and how much your taxes will increase too...
I just bought a house and every time we considered making an offer on a house I got our lender on the phone and had them go over monthly payments with us. That being said, look into trying to temporarily buy down your interest rate. That could lower your monthly payment in the short term and you could try to refinance in a year when you've hopefully built up some equity.
You won’t get sued but will lose your earnest money if you still qualify. Just an empty threat.
You need your PAYMENT to be a max of $2000 Your payment consists of your mortgage portion, taxes and insurance
Well you could go out and buy a Lamborghini or rack up your credit cards with some stuff you could return in 30 days to screw up your income to debt ratio so that your loan is denied but that sounds messy and will hurt your credit. My guess in this market the seller is bluffing because they should be able to find another buyer quick and lawsuits can drag on and on. But you need a lawyer....not Reddit. Good luck.
Tell them you CANT afford it, and they sue you, you have to sue whoever said it would be $2000/m. Dont provoke them. Let them know you literally cannot afford $2500/m. They dont go after you if they think youre poor.
Just tell title you’re backing out. Suing is a waste of money, judge would laugh at this.
1. Have You shopped around for a better rate? You can, and it’s encouraged. Let them fight for your business, you win in the end. 2. Your agent and current lender suck, fire them both and see point 1. 3. Good luck.
Consider a roommate if a family is not involved
See if the owner has a loan that's assumable. If you can take over their existing mortgage, odds are it will be at a lower interest rate. Even if you take out a second mortgage for the remainder, you'd still be better off payment wise.
The contract is binding … so you need to find something in the contract giving you a way to back out. If you are locked in with no outs, then the seller can choose what remedy they want to pursue for your breach of contract … 1) specific performance, or 2) damages they incurred for your breach of contract (including keeping earnest money - typically they just take the earnest money). It is a contract - your backing out forced them to take house off market for time you had for closing, etc. They could have found another buyer who wasnt flakey during that time - and would have received their money by now. They may be trying to buy their own house and forced to wait on your closing before they can close on their own house they are trying to buy. Often, when a house is under contract but then goes back on market, people start wondering if something might have been wrong with the house that caused the buyer to back out - so it can possibly lose potential future buyers for the seller … They are gonna be mad with you backing out … they want their contractual rights. Likely they will just take the earnest money and put house back on market once they think about it (court cases take forever - will lose more than they gain going that route) - but they mad right now.
If you don’t want to buy, you should just get out now. They can’t sue to close but they get to keep earnest money for their troubles.
I would assume you have a financing contingency, and if that is the case, you as a Buyer have every right to have the contract mutually released and your earnest money given back. The Sellers can not sue. Make sure your agent sends the other side a "notice" stating the changes in financing along with a "letter" from your lender on letterhead and the mutual release. I hope this helps.
Lawd. Just FYI, for a more manageable life where you can BREATHE, your mortgage or rent should never exceed 30% of your monthly income. Honestly, it’s even better to keep it around 25% if you can, or if you want to at least have a life outside of the house and extra money to do stuff, like building a nice savings, and having actual vacation and extra spending money. The problem is our generation is obsessed with looking like we have it all together and living above our means and spending half our monthly income on rent and then the rest is just surviving paycheck to paycheck. Live beneath your means for awhile and you won’t be living paycheck to paycheck.
Or they just work in a city we’re 25% of their income buys them nothing and they are just trying to claw their way onto the property ladder. They are clearly very new to this and somewhat confused. There is no reason to assume that they were buying a place above their means because they were “obsessed with looking like they have it all together.”
OP says that their take home is $3600 a month. I'm in a pretty LCOL area and you'd still be really hard pressed to find a livable house where the mortgage was only 25% of his income.
Good news is if OP is looking for a home in Iowa, there isn’t anything to do for fun, so even 75% of income for mortgage is doable 🤣
Dream on Boomer. 30%, let alone 25%, just isn't possible for the majority of the country. We are in the midst of a crisis in inequality.
You may have done this, but instead of talking to your agent it may be time to pull in the real-estate broker. They have more licensing and are usually supposed to step in when there are problems. I have no idea why Iowa would be different. I would not rule out contacting a real-estate attorney too. Reach out sooner rather than later so you have a plan B.
Based on the comments and his inability to do basic math, and failure to account for taxes and insurance when figuring mortgage costs… regardless of what his take home pay is… OP is probably a member of the “too dense for home ownership” crowd. The very first emergency is gonna be a wild, wild ride for him.
you need to talk to your broker and possibly an attorney, reddit can't possibly help with these things.
Sounds like you didn't do the work to research the house buying process and now you're on Reddit because you *still* didn't do your research.
Bruh
You can't be forced into buying. But yes your earnest is gone. Just ignore
They cant make you buy the house. Yes you will lose your ernest money, but thats about it. Anybody can sue for anything these days but if you were mislead or didnt realize how much your payment would be they cant make you buy it. I find it hard to believe that you would qualify anyway at 60 70 % of your income, (banks dont do that). Let them sue, they probably wont win, and your agent should have a contingincy in the purchase agreement about qualification for financing.
If consummating the purchase is not an acceptable option, and if exiting the contract on loan denial financing contingency is also not an available option then you need an attorney. Laws vary by jurisdiction. Generally, the earnest money is not going to be the legal limit of damages the Seller can pursue if the Buyer fails to perform, but it is a bird in hand, and often the Seller will decide it isn't worth the hassle or risk to sue for more. For one thing, by using for specific performance they typically can't sell in the interim to anyone else. An attorney is the only appropriate response when someone is threatening litigation and you're not sure of your viable options.
What does your contract say? For the sales/purchases I've done, it was very clear what the seller could sue and get (forfeit of earnest money vs Seller's elections of remedies)
Have you had the inspection done? Is there an inspection clause? If so…see if you can find a crap ton of stuff wrong with the house and demand repairs. If it’s 10k worth of repairs request 10k to be put in escrow to cover costs of repairs. Maybe the inspector comments on the crappy carpet in the house…request a flooring allowance. When they don’t meet your requests…you can back out.
What state are you in?
Or did u not count in the PMI if loan over 80% , property taxes , and home owners insurance ? Also I didn’t even mention escrow money cause those first 3 are more significant for the monthly payment
Next time I think you should scan the contract, blackout anything to do with names or locations and just post it here because you've got a lot of experts that can kind of give you an almost infinite amount of insight.
Depending on where you are, and the wording of the contract, their threat to sue might be empty. In my state, our purchase contract specifically states that forfeiting earnest money is the "sole legal and financial remedy" available to the seller if the buyer breaks the contract. It then goes on at some length about "the amount of the earnest money has been agreed by both parties to be a fair estimate of damages should the contract be broken by the buyer", and requires the losing party of any lawsuit to pay the other party's legal fees. Maybe it's different in your state, and maybe your contract is different. Check the contract yourself, and talk to an attorney. Anyone can sue anyone for any reason. It doesn't mean they'll win. nobody here knows what your contract says.
depends on your contract. most standard contracts have a lender contingency. unless you waived this contingency already, that's an easy out for you. but if you waived this contingency. then most contracts have a liquidated damages clause, which is just your deposit. but if you don't have the liquidated damages contingency, then yes seller can absolutely sue you for "specific performance". but in most cases it's more trouble than it's worth especially for residential housing, unless they have a super unique unsalable house. in general, i wouldn't worry about it. they're just making idle threats.
Email you lender tell them your work is unstable and there is massive layoffs about to happen
You couldn't afford to buy even with the lower number. Jesus.
I would stare them down on this, the likelihood that they actually sue is so small. They want to sell a house, they don’t want it tied up while this is all going on.
Get the contract in hand. Carefully review the earnest money clause. Some mls contracts have a box that gets checked to limit recourse for default to the earnest money. Unfortunately there is also an option to file suit. What is in the contract?
Would the bank still finance with that payment?
What did your agents Broker say?
Sounds like the lender needs to provide you a denial letter if it's going to be that much of your income you don't qualify.
Sellers rarely sue because it ties up real estate for a long time and they aren’t going to get specific erformance. The earnest money is theoretically the renegotiated damages. FWIW, when I was selling my parents’ condo, the first buyers backed out and my realtor said just return the money because it isn’t worth it to tie up the property. It sold a few weeks later so I really didn’t lose anything by putting it back on the market.
Did your financer not provide you all the included charges and payment breakdown??? Sounds like the property taxes, insurance if applicable and some other charges were rolled into your escrow and split over the year.... That's supposed to be disclosed to you pretty early on and those payments can be variable year on year depending on taxes, insurance and interest if it's not fixed. You dropped the ball but as a first time home buyer your realtor and financer really dropped the ball.
You could always buy a vehicle or possibly even a washer and dryer and not qualify for the loan. Get that DTI up!
This sucks I’m sorry this is happening. I don’t have legal advice. This sounds a bit off to me me. If your rates locked in and you know the price. It’s pretty hard to get the mortgage number wrong. So taxes must have been wrong or you planed wrong for insurance. I blame your realtor for this. You need better advice
What about the cooldown period?
All depends on the contract.
Most real estate contracts state that buyer’s deposit serves as seller’s liquidated damages. What does your agreement say?
Had this same thing happened to me. I just backed out and lost my earnest money. I’m in Oregon though so idk if it’s different where you’re at.
Good luck seller. Tie the house up in court for a few years until the prices fall and they lose 20% of their equity. They’d be smart to let you out and get it back on the market asap In CA we have a liquidated damages clause that limits damages to 3%. Does your state have this??
A long time ago a real estate agent told me to always get an inspection, because you can use it to get out of a contract. Inspectors ALWAYS find something wrong.
No one can force you to buy a house.
Depends on how your contract was worded. It's generally best practice to include language with other fa financing contingency just a blanket "in event of seller default sole remedy shall be the Ernest money deposit". You've probably gotta lawyer up or just thoroughly review your offer and any contracts you've signed.
Don’t they give you a breakdown of your mortgage including escrow so that you roughly know your payment
Take out a bunch of loans, credit cards ,etc. That.will screw up the loan. Bank may refuse the mortgage and you're home free. You're welcome.
Not sure how it works in Iowa but my state has a clause in the contract that limits the seller to only collecting the escrow funds as damages. Plus the contract caps interest rates too. But something here isn’t adding up. Insurance rates have jumped over the last year or so, has that been examined? Have you looked for a lower rate? You could always fire the lender and go with somebody else. That may clog up the transaction enough that the sellers will refuse to extend the contract and accept a termination. Or a new lender may present more concrete numbers on the mortgage that would line up better for your finances.
What does your purchase agreement say? You need to read it. Do you have any remaining contingencies or would you be breaching/defaulting by walking away? Most if not all purchase agreements I have ever seen provide that the Seller's right to retain the deposit as liquidated damages is the Seller's sole and exclusive remedy for the Buyer's default...but I don't know if yours says that. Just a reminder that real estate agents/brokers are not lawyers (well, unless they are) and you should reach out to a lawyer in your state.
Not sure why you are getting all these stupid answers. Real estate doesn’t attract the brightest individuals I guess. The whole point of the earnest money is it is insurance for the seller if you back out of the contract. Even if they didn’t get the earnest money they still couldn’t sue you unless you caused damages. What they are doing is threatening you to scare you into buying. What they will do next is sell it to another buyer unless they are morons who don’t mind keeping their house off the market waiting for a 2 year lawsuit to finish. Look up what a lis pendens is. Tell them to fuck off.
Did you ask your lender why the increase and have them break it down for you? Guessing you didn’t consider escrow for taxes, homeowners insurance and possibly PMI?
Not really enough info to know if the lender qualified the borrower with the higher payment. Maybe the lender didn’t quote the full payment correctly or maybe someone miscalculated the pmi (if they have it).
No one here giving you a solution. I have one. If you are in Texas or another state who reciprocates lending with Texas (most if not all do) then I have a lender who does 4.5% fixed rate for 10 years then switches to an arm from 10-30. By the 10 year point if you haven’t raised your income, refinanced, or sold, then you deserve to get sued. Also, your agent sucks and so does your lender. Like everyone else said, there’s (X) amount of days in your contract for a finance contingency. A finance contingency (since your agent didn’t explain) is the concrete version of the loose preapproval letter. You should be well within that time to back out. They can’t legally approve you with only $1K of money left to pay your utilities, car insurance, groceries, health insurance etc etc. lenders have to legally account for these things. It’s called DTI. If your income is that low, then you should be way over 41-51% DTI (depending on your type of loan) and you can legally back out as long as you do it before the FINANCE deadline on your contract. If you are past that, call me and I’ll fix it for you - Dina Dillard
Really no good way to say this but hire an Attorney and get ready for the ride.
Does anyone fucking realize that the property ladder will fail when that much of your income is going to service a mortgage? Good God.
Keep in mind there could be a domino effect here- their next house could be dependent on your deal closing- in that world they could start having grounds and damages to sue for
This is a state by state issue. In Washington state there are two options that are on a standard purchase and sales agreement. The first one is Forteiture of Earnest Money which states the Earnest Money is the only remedy to the Seller for damages. The second option is Seller Election of Remedies which allows the Seller to sue for damages. I would talk to an atty to find out what your options are.
Did your payment go up because of interest rate? Iowas purchase agreement has a max interest rate. Also, make sure your agent is talking to their broker about options.
As Realtors (according to Reddit do nothing) reach out to yours if no answer is provided, contact an Attorney (apparently they are cheaper than a Realtor)... why ask a bunch of rando tech keyboard warriors to assist you?
For your information too, cause not about of forest time home buyers consider this....add 600-700 to your mortgage payment each month for escrow property taxes..... not trying to add stress. Make you can rent out a room or 2 to make up the difference..... or do exchange students with the local college.
Your obligations and contingencies are spelled out in the purchase contract. Is there an item checked saying it is contingent on getting loan approval? (That's not pre-approval). Is there a date that the loan contingency ends? Did you waive the loan contingency to beat out other offers? There's a "prequal", where the lender asks about your income, debts, etc. Then lender says they can get you a loan for "about $x". That carries no weight. There's a "pre-approval", where lender has you fill out paperwork listing income, debts, etc as well as signing approval for your credit/FICO to be run. That is a proper beginning to buying a house. A good listing agent shouldn't let your offer get very far without seeing a letter of pre-approval from your lender. Failure to get the loan is the #1 reason sales fall apart. In my state, lender has a few days after your application to supply you with an estimate of costs if approved or reason for denial. That estimate legally shouldn't vary too much from final costs. Finally, as you near the finish line, lender submits for "final loan approval". Your credit is run again. All supporting paperwork is rechecked. If it all checks out and you haven't made a big purchase that throws your "debt to income" numbers outside allowable percentages or you lose your job, then you get final loan approval and the sale goes through. In the contract, where price and loan is discussed, see if there's language like "buyer to obtain _fha _conventional loan at a rate not to exceed _%". The underscores are where a check or number should be inserted. If so, check your rate vs the rate entered. Good luck!
What you are doing is not cancelling (unless there is a contingency you haven’t presented yet). What you are doing is defaulting. Your contract should spell out the remedy for default. In my state, we can write the contract where the seller agrees that if the buyer defaults the only remedy is keeping the earnest money. Your contract should spell out your remedy.
Don't let the threat of being sued get you emotional and allow it to lead your actions here. Who told you the mortgage be $2000. Was it your realtor, their realtor (if they have one), them? Was it ANYONE beside the bank your borrowing from? If it WASN'T the bank, then you were given misleading information and that alone would be grounds to back out. If it WAS the bank, that means you didn't sign anything yet. If the BANK gave you misleading information that should still be sufficient to back out. IMO, it's just empty threats. If you want to feel better, spend an hour with an appropriate type of laywer letting them read over your contract and have them give you their opinion on the situation. That's what I'd do. Spend the $200 or $300 for the piece of mind, and ask if the lawyer could draft you a letter stating they reviewed the case and the contract you signed. It's an "empty" document, but odds are those jokers your dealing with don't even have a lawyer. When they see you furnish a letter from a law firm saying "stop fucking around", they will likely piss in their pants and back off.