How to back out of purchase w financing contingency

Question

Looking for advice from any mortgage professionals.. I need to get out of a purchase contract which is only subject to a financing contingency at this point.  I basically changed my mind due to recent personal life developments.  I have been conditionally approved and provided recent bank statements proving the down payment. Can I notify the lender that I no longer wish to use these monies for the down payment which will make me ineligible for the loan? Or that I plan to quit my job and relocate? Does updated verbal information from the borrower change the loan approval? I need a loan denial letter

Dustin Allen · Answer

Account Closed

Unfortunately, “changing your mind” is not covered by a financing contingency. You are obligated to work diligently to get the loan that you specified in the contract. If you still qualify for the financing, you will be required to perform the contract. If you want out, you typically will have to walk away from your deposit at this point.

Account Closed · Answer

Thanks for the reply. I have an in law that I will now need to support. And basically while that obligation is not a debt which can be calculated in a debt to income ratio, I’m trying to be responsible.

Josh C. · Answer

Literally the purpose of earnest money. If you were the seller you’d want to keep it. Have your agent draft the paperwork and the seller keeps the em as damages.

If caught lying and the seller ends of selling for less or has other real damages you are liable for those plus attorney fees. 1/10 would not recommend.

Lesson learned and move on.

Chris Seveney · Answer

@Melanie Hines

Financing contingency is based on a bank rejection for the loan which may occur due to low appraisal or other reasons - but one of them is not completing the documentation for the lender

So you cannot say I was not approved because you did not provide info to the lender or your info originally was incorrect.

You can try and walk away but assume any deposit you made will be gone and potential other recourse from seller

Jonathan R McLaughlin · Answer

@Melanie Hines state and contract specific but should be language defining what meets your obligations. I often see “buyer shall produce evidence of a submitted application”

If you submit the app and don’t qualify that would probably count. Check with your bank or mortgage broke, it will not be the first time they get this question.

You can drive a truck through the door left open by most finance contingencies. Read what you signed.

And presumably this is a profitable deal which would ultimately help your financial position and hence your relative. Sure this isn’t just nerves?

Dan H. · Answer

In my opinion being responsible is not trying to back out of the contract and also try to keep your earnest money.  The seller has listed the property as pending in effect taking it off the market based on the contract.  The seller has performed to the contract.

Is it moral or responsible to try to back out of the contract without cause and with no penalty?

You should decide between proceeding with the purchase or losing your earnest money.  Doing anything to try to get out of the contract and keep your earnest money is it being responsible?  Responsible people realize their actions have consequences and can impact other’s (the sellers’) lives.

JD Martin · Answer

I think based on what you have posted, you don't really have a right to cancel and walk and the seller would be within reason to keep your earnest money. While not impossible, it seems unlikely that you would go from an individual able to buy a house to one that would be in financial duress in the span of a week or two due to some situation that was unforeseen. I think an arbitrator would see through it.

You could offer the seller an incentive to agree to cancel the contract and get the agents to sign onto the deal. Or you can just proceed and then sell the property yourself.

Sergey A. Petrov · Answer

you signed a contract to purchase real estate. that contract is contingent on you being able to obtain financing. are you still eligible for financing? changing your mind doesn't always work unless you truly did have a serious life altering situation that is forcing you to quit your job, relocate, take other action. even then you might be in a grey area with your earnest money potentially at risk...tough to comment without knowing what may be happening which may be too personal which is understandable.

How to back out of purchase w financing contingency

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