When to back out of a deal

[Jerry Poon]

I had found an okay deal for a duplex, and given the market and how tough it had been to find extraordinary deals, I decided to pursue it. I found a direct mortgage lender here on these forums, and we went through the motions in applying and getting approved. I have a few properties financed, so it had been hard finding conventional lenders, and was pleasantly surprised when the loan terms he came back with were good. I was given a 5.5% fixed 15-year loan. He said I was still eligible for conventional loans due to the fact that my financed properties were under commercial loans. He was a professional, so I took his word for it. Big mistake.

I thought this was going to be a slam dunk. There was a ton of paperwork, but the terms I had on the loan made it worth it, in my opinion. Right up until closing date, I had not heard from him, and I had thought the "no new is good news" adage held true. A day after our target closing date, he reached out and said he needed more time. I fell into an immediate panic and gave this guy a call to see what was going on. It turned out that my loan application was kicked back because I was no longer eligible for Fannie Mae loans. He said he would try and get me another loan, and at this point, I was already $1600 in the game ($1000 earnest money and $600 appraisal) so I went along with it.

A week and a half later, he came back with a 7.55% variable 30-year loan. I told him I wanted a fixed rate loan, and he came back with a 8.1% fixed 30-year loan. While I am cashflowing better than with the original 5.5% fixed 15-year loan due to the longer loan term, I feel like I have been getting jerked around. It almost feels like a bait and switch.

We went from a 5.5% interest rate to 8.1%, and from a 15-year loan to 30-year. There is a 5-year prepayment penalty, so by the time 2022 rolls around, I will have paid almost twice the amount of total interest, with almost no dent made to the principal compared to the original terms. This will make it hurt severely if I ever decide to pay this loan back early.

I am now getting nothing by bad vibes from this deal. My gut is telling me to pull out, but I will be out $1600. I also understand that I will be out a lot more if I follow through with this deal.

What should I do? Has anyone been in a similar situation?

As a secondary part of this post, does anyone have any advice on what I can do to get my money back? I know that I might be able to get the earnest money back since I have tried and failed to secure reasonable financing. Any advice on how I can get reimbursed for the appraisal? The only reason I got this expensive appraisal was because this guy said I was eligible for a traditional loan. I would not have moved forward if he told me from the very beginning that this would have been an 8.1% interest rate type of deal.