Lender changed the terms and now the deal doesn't pencil

[Steven Whipple]

I found my first deal, and everything looked good. All the numbers worked out the way I wanted. We got pre-approved for financing, and our offer was accepted. We paid for the inspection, and it turned out well. Last night I got an email from the loan officer telling us the underwriter says the loan looks like predatory lending and raised the rate by 5/8 of a percentage. Closing costs end up being over 9k on an 80k loan. Now the deal doesn't pencil out. While it will still cashflow, the COC ROI is down to 5%. The loan officer says do the deal and the refinance in 7-8 months.

Should we walk away or do as he suggests and refinance in 8 months?