Liquidated damages if no *good* loan...

[Ev Conrad]

Hello all,

Have an offer on a property, since I am using the property itself for the loan I am wondering if the lenders I am prequalified with only offer loans with rates/terms I am unwilling to accept, would this trigger the liquidated damages clause?  Just curious in case the rate that comes up is hugely different than the rate I expect.  I am in California, contract is pretty standard with a loan contingency.  Thanks!

[Chris Mason]

Yup, rates are spiking this week for whatever reason.

You would need to read the language in your specific contract. Assuming your realtor is using the newest CAR contract, it'll have this section. Example below.

Note the highlighted portion. A realtor crafting an offer that will be attractive to the seller will always put a rate higher than prevailing current market norms. Putting a low rate looks like you're just looking for an excuse to get out of contract, in which case "why waste everyone's time?" is a totally valid question, and a totally valid reason for a prudent seller and listing agent to have tossed your offer in the trash. Lots of realtors will also leave it blank entirely, meaning you do not have that "out." In this case, this person has the discount points section blank, implicitly that's understood to mean if they can get 3.5% via paying ANY amount of points (presumably up to, but not beyond, the legal limit, since contract terms requiring law-breaking are generally unenforceable), it's not a valid "out." 

FWIW, if you back out over something trivial/irrelevant in the bigger picture like a rate that's 0.25% or 0.5% higher than you would have gotten a week ago, your realtor may put you on the back burner. Rates moving around is "normal course of events" type stuff. It happens. If you're serious, high intent, and not a time-wasting tire-kicker, it's not a cause to back out. It just means you will refinance at some point in the future when the 40+ year trend (since the early 1980s) of "rates overall go down over time" continues (Japan has negative mortgage rates, so we don't know how far that can continue, but 0% is clearly not a hard-stop). By contrast if it's a more significant difference, >1% or so, because unbeknownst to you your FICO score tanked between preapproval and being in escrow (or whatever), I'd say that's reasonable, not crazy.