In Escrow and Buyers Want to Rent

[Maria Amaro]

      Hello. We are selling a house in Southern California and the buyers have asked for three extensions, have removed all contingencies, done final walk through. We were supposed to close today and now they are asking to rent from Dec to May in order to have time to improve their credit score. Their credit score is 680/660. They also claim they need time to pay off an IRS obligation due to withdrawing money from 401k after changing jobs. They stated after this, they will be a in a better position to afford the mortgage. 

     They were aware of their credit score and IRS obligation before they put in an offer on our house, so I am not sure I understand this. Also, isn't this credit score a little low for renting to someone? I worked for someone that owned properties in Houston and would feel comfortable being a landlord in TX, but CA has laws that make it more difficult to evict someone. If we were to rent, I would ask for a better credit score and anyway, we want the money from the house sale to buy a house next year. Any advice? Do we get their earnest money at this point? What are our options? 

[Chris Mason]

They need 6 months to close on this house?

No, they (or you) need to cancel it, and they can go find their dream house in 6 months.

Or they need to simply find a way to close now, and they can look at refinancing in 6 months if they can get their FICO scores up. Rate/term refinance and purchase mortgage rates are identical, so either way they'd be looking at whatever/wherever rates are in 6 months, but this way (close now and look at refinancing) they own the house and it's not your problem if rates go up another 0.5% and their newly improved FICO score is a wash with that. 

Speculation to follow. Every April and October I have a client or two that suddenly can't pay their income tax bill; never occurred to them that if they go into escrow when taxes are due that they will have two big expenses to pay that particular month. Not really a coincidence either: "I had a good year!" is correlated with "I want to buy a house!" and is correlated with "oh crap that's a huge income tax bill!" - causing these things to often all happen at about the same time for escrows that start in April and October.

Going into escrow in October lines up with both this and us currently being in late November.

There are actually a lot of these little seasonal things. Next up: Property taxes are due in December in California.