NEWBE help! Legal "owner occupied" question...

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So my wife and I live in a condo (and we have for 7 years). We decided to build a house last November, found one we liked and signed with a local builder.

Since that time, we have been through myriad delays and a lot of shady dealings on the part of the finance company. For example, they have sent us addendums to the contract along with a cover sheet that described the addendum as “acknowledgement of receipt of a policy change”. The part that is really upsetting is that the addendum potentially could have cost me $27K! They have refused to give me a closing date (until recently), and stalled on everything.

I ran this past my real estate agent, and he explained that many builders/mortgage companies (they are both the same group, in my case) have been trying to make the process as difficult as possible so buyers will “walk” from the deal and allow the builder to reap huge profits when they sell to another buyer (because the market has gone up since we signed—our house is now worth about $65-85K more than we will pay for it).

So, he encouraged me to use another lender. While I was in talking to the second lender, he recommended that I re-finance the condo I am currently in. I originally didn’t want to do it because we were going to be buying this other house. But as time wore on, I began to fear we would not be getting the second house and interest rates started to climb. I decided we couldn’t take the risk, and we decided to re-finance the condo.

The process for re-financing the condo kinda got drug out, and today we finally signed the paperwork. We should also close on the second house in about a week.

The problem is this. We will probably be renting the condo out (and we may have renters already). However, we financed the condo as “owner-occupied”, not as an investment. When we signed the papers, I raised the question with the title agent, a senior person at the title company and my mortgage broker. They all agree: I can finance as “owner occupied” because I occupy the condo right now. I have lived in it for 7 years. Etc.

However, the paperwork I signed had two parts:
1) There was a section that stated that I would have to live in the condo for a period of one year after the refinance. If I did not, the mortgage company could recall the loan and/or raise the interest rate. I am not really worried about this, as I’ll just pay the higher rate, or refinance as an investor if they recall the loan.

2) There was a separate (unrelated) section that said that I was getting this loan as “owner-occupied” and would be subject to penalties/fines/jail time if I was fraudulent in filling out the paperwork. When I brought this up to both title agents, my mortgage broker and my realtor, they all agreed (separately) that this is for investors that will never live in the house. Since I have lived there for 7 years, it does not apply to me.

In summary, a side of me wants to walk from this loan. On the other hand, if I do and I do not get the other house, I will be an idiot for not re-financing at a lower rate when I could.

Guys, what should I do? I have three days to walk if I want to.

I have always tried to live as ethically and morally as possible. However, the language in the documents was so complex and convoluted that I can’t tell if I am doing the right thing or not.

At the end of the day, I am seriously worried about walking on the condo loan, and then not getting the house. At that point, I would have missed an opportunity to re-finance and pay of my last two credit cards at a decent rate.

Help!