Deal Fell Through - What's My Take-Away?

[Art Maydan]

My wife and I were supposed to close on a duplex today. Yesterday, the financing fell through. I found an off the market, gut rehabbed duplex that looked like the perfect deal. We were going to buy it for $270K and it would get $1,400 a unit easy. We even had tenants ready to go – a couple starting pharm and med school. Financing was an issue. I only make $30K and she isn’t working yet. She just graduated and was accepted to this program called Teach For America that trains and places teachers into low performing schools. She already got hired at a school to teach elementary special ed, but the contract is contingent on her passing background/drug screening and completing training, which she’s currently in. Caveat: Teach For America guarantees a minimum salary of $38K to all members even if they don’t get placed (assuming they keep looking).

Now this house is the fourth house we made an offer on. We had 3 FHA offers on multi-units we found with brokers rejected before we realized nobody was selling to FHA buyers in this market. Actually, one of the offers was soft accepted, but we found out after the seller kept us in limbo for a month that he wouldn't take the offer with our contingencies that he fix his violations, which were significant.

The off the market house is next door to the violations house. After we saw the violations house with a broker, I came back alone and knocked on the door of the house being rehabbed and the rehabber happened to be there. We were under contract 3 months later.

ANYWAY, we found a lender who said he was confident he could use my wife’s future income given the $38K guarantee from Teach For America to put us both on the mortgage, which is the only way we’d qualify, and do 5% down conventional. He extended the closing twice asking us for more and more in reserves and to complete classes and provide documents. I have 7 months of mortgage payments sitting in my bank and over 100 various documents in a folder.

Yesterday, he tells me that his underwriter was doing the employment verification and the $38K guarantee from Teach For America is not sufficient and he needs a letter either from them or from the school she’ll be working at stating her offer is non contingent. My wife is in training with both Teach For America staff and people who work at the school she’ll be working at. The staff wrote her several versions, but wouldn’t say “non-contingent.”

We switched lenders to this lender because the first lender we worked with said this would be an issue and we needed a non-contingent offer. We tried getting it then and couldn’t. This guy said he was sure he could go off of the Teach For America guarantee. This is the whole reason we switched to him.

So now we’re in the hole two months of time and $5K earnest money which my lawyer says he’s not sure I’m getting back because I told him I’m clear to close, which is what my lender told me. I spoke with the buyer and he said he’ll extend a month if we put another $5K down, but if we don’t close in that time we lose it. She could be non-contingent within a week, but it could take up to when classes start in 6 weeks. And who knows what else might happen. We aren’t willing to risk the $10K, so we told the lawyer and lender if they can’t make it work under other terms, we’re out. The lawyer said he’ll “sort it out” today. So I guess we’ll see. I offered the buyer a lease to own with a contract very in his favor paying above market rent, but he doesn’t want to do it.

We’re staying at my mom’s house in the suburbs. I work 10 hour days and the commute is 1.5 hours each way, but I can manage. But my wife’s training is longer and farther away. She’s training at a college now, but she’ll be in a school in a neighborhood I don’t want her taking CTA to starting Monday. The neighborhood she’ll be teaching in in August is even worse. So we have to buy a car this weekend for her to drive to training and work, which is apparently a bad thing to do while buying a house.

I’m having trouble seeing what my take-away from all this should be. It’s been a huge learning experience. Relatively inexpensive if it cost the $1K we paid for the appraisal and whatnot. Less so if we don’t get earnest money back. But where did we go wrong? Is there any way we could have made this work?

I don’t even know who to blame. My wife and I did everything we could at every step. We provided every document, learned about every step of the process, wrote letters of explanation for everything, took 3 classes about home ownership and landlording, deferred every purchase we could. I don’t think the loan officer was trying to screw us over. He for sure overstated his confidence. But I also think he did everything he could. I understand our loan is a more difficult one given we’re young first time buyers, I make very little, my wife’s going off of future income, and we’re trying to buy an off the market duplex.

Our game plan from here is to buy a car this weekend for my wife to commute while I keep taking the train, live at my mom’s house, keep saving, and I’m going to get a real estate license ASAP so that by the time she’s working, we’re both employed and we can look for deals ourselves. We hated working with brokers. I work at a relocation company and they’ve agreed to reimburse me for the courses and I can hang my license here too. I do want to quit ASAP though. I hate this job with the passion of a thousand suns. But I’ll milk it while I’m here.

What should my take-away be? Where did I go wrong? Can this deal be saved without risking $10K? How does our future game plan sound?