Hi All, 

Apologies for the long winded background, but it's needed for my question at the bottom in BOLD. 

My wife and I were looking at building a townhome in our area from a large builder, we visited the pre-built sites and felt good about moving forward as long as the financials made sense. It would be our primary home for a year and then we would convert it into a rental home. 

One of the major factors for me was the fact that the Sales Agent for the Builder told us and provided us with documentation that we could pay the monthly PMI upfront on a FHA home loan. As someone who doesn't know all of the lending laws, we assumed that what we were being provided as estimates were accurate (understanding that rates and some closing costs could change depending on the lender). Anyways, the estimate they provided was a 30-year FHA loan at 3.5%, while rolling the Upfront PMI into the loan and while paying the monthly PMI upfront as well. The builder was also offering 6% in credits towards closing, so any other loan was not evaluated as we are trying to preserve our cash. After running through the calculations, it made sense to move forward given this information, so we signed the purchase contract and provided our earnest money.

Now the fun part, they put us in touch with their lender, and their lender said that we are NOT able to pay the monthly PMI upfront for an 30-year FHA loan, and therefore we would be stuck paying the extra $200/mo in PMI for the life of the loan. I reached out to the Builders Agent and told them that this was an issue and they proceeded to say that they are not a Loan officer and any documentation that was provided in error shouldn't be a major issue as there are plenty of other financing strategies available. They said we cannot cancel our purchase contract because of that, and if we do, they will not return the earnest money due to the clause in the contract.

The other options they are recommending do not work for us:

- Stay with the 30-year FHA loan and 3.5% down with the 6% of closing costs. And have PMI for the life of the loan (unless refinanced down the road as an investment property not as a primary).

- Switch to conventional loan, and put down 5% and PMI will eventually fall off. We would only receive 3% of closing costs, and the other 3% would reduce the purchase price.

- Switch to conventional loan, and put down 10% and PMI will eventually fall off. We would only receive 3% of closing costs, and the other 3% would reduce the purchase price.

- Put 10% down on an 30-year FHA loan and then the PMI could eventually fall off.

I understand that there are options here, but all of these options now require more cash upfront and or worse interest rates / PMI for life of the loan.

I'm curious if we have any "legal" recourse to say that the Sales / Builder's agent provided us with incorrect information that led to our decision of purchasing the home, and whether the threat of taking legal action will scare the builder enough to give us our earnest money back, as we really do not want to move forward with the purchase anymore given this new information.   

Appreciate any insight and or recommendations.