Comments on: When your financing evaporates, do you lose your earnest money?

By: New Homes Alpharetta Ga

New Homes Alpharetta Ga — Wed, 22 Oct 2008 17:07:24 +0000

This is a conundrum. Who should get the deposit? While the new home buyer does not want to lose their earnest money, the builder doesn’t want to build a home specifically for a home buyer without some collateral. It seems reasonable for the builder to receive some sort of liquidated damages for the buyer’s failure to perform.

Now, if the buyer used a preferred lender of the builder, then this can all be squared away at the very beginning of the process. The builder’s lender should be honest with the buyer and builder about one’s chances of obtaining a loan. If the buyer is borderline, then the buyer should be able to make an informed decision upfront about this matter; this is just one of the many reasons why a buyer needs their own representative — whether it’s a buyer’s agent or a buyer’s attorney to advise them about possible problems moving forward.

By: Kevin Lisota

Kevin Lisota — Mon, 13 Oct 2008 16:48:28 +0000

I’ve been on both sides of this as a builder myself and as a listing agent for a builder. Having a preferred lender for new construction is super common, and I don’t think the intentions are usually sinister. (though I’m sure there are unscrupulous examples out there) First, it helps to market the property if you have some “financing options” already worked out. Second, when builders require a buyer to qualify through the preferred lender, it serves as a sort of check and balance that the person is indeed qualified, since normally you are relying on a pre-qual letter from an unknown lender. As a builder, I trust the lenders I work with and when they say they can get a loan done, I believe them. The same cannot be said for some other lenders in the market.

Ultimately, though, builders motivations are not kickbacks from lenders. They need to get their inventory sold, and it doesn’t matter who the lender is. Do your own diligence and shop various lenders against the preferred lender. Reputable builders will not change the deal on you if you use a different lender.

By: Kary L. Krismer

Kary L. Krismer — Sat, 11 Oct 2008 04:44:04 +0000

Tim, did they go “by-by” because of the financing or because the buyer backed out? And if the former, was it not possible to get them other financing?

By: Tim

Tim — Sat, 11 Oct 2008 04:39:19 +0000

We’ve had a few transactions (purchase) go by-by. And, we have a boat load, at ton, of idle files (mostly refi’s) waiting to either proceed to close or get canceled. Some have been sitting idle for weeks.

We did get a couple FSBO’s in this week, which was interesting.

By: Kary L. Krismer

Kary L. Krismer — Sat, 11 Oct 2008 02:00:22 +0000

Rhonda, have you seen many loans go poof?

I’ve been hearing from more and more people on the street that they think financing is gone, but I’ve yet to hear a mortgage professional mention anything.

By: Rhonda Porter

Rhonda Porter — Sat, 11 Oct 2008 01:35:41 +0000

Using the builder’s lender is a terrible idea IMO. The LO will do anything to get that loan approved without considering the borrower’s best interest.

I recently had a conversation with someone who is locked into a new construction purchase (I am not her lender). They’ve been in contract for months and this person has realized they have a stated income loan and now want out.

I asked her what her thoughts were when she saw the loan ap with the OVERstated income and she said she just wanted the house.

I think it’s in a buyers best interest to work with individuals who are not connected so that they are all (hopefully) serving the buyer instead of working together to serve themselves.

That LO know’s he’s fed by the builder…he’s not going to tell the builder that the buyer is not qualified if he can find someway to shoe-horn him/her in.

By: Kary L. Krismer

Kary L. Krismer — Sat, 11 Oct 2008 01:05:46 +0000

Sniglet, it’s very uncommon for buyers to lose funding – - – - (wait for it) – - – because buyers are very uncommon!

The NWMLS addendum is a bit more buyer friendly, but there is a new clause with recent amendments requiring seller approval to change lenders. Buyers need to consider that.

By: Sniglet

Sniglet — Sat, 11 Oct 2008 00:30:19 +0000

Actually, it would also be interesting to hear how common it is for buyers to lose funding on existing home purchases (i.e. non construction)? Have the number of cases where someone who’s offer was accepted on an existing home finds they can get financing increased in September from August?

By: Sniglet

Sniglet — Sat, 11 Oct 2008 00:27:30 +0000

Just how common is it these days for buyers to lose their funding? Is it more than 10% of deals? Has this started happening more frequently in September than in August?

By: Tim

Tim — Sat, 11 Oct 2008 00:14:32 +0000

A couple weeks ago I ran across a builder addendum regarding financing. It was an eye-opener for me. It mentioned that the borrower had to get prequalified BY the builders “preferred” lender. Period. And, that if the buyer did not obtain financing from the builders preferred lender that the borrower would forfeit any premium upgrades (lot location, physical upgrades to the home etc). Further, if financing was obtained outside of the builders preferred lender, the buyer, as a condition of their offer being accepted, must provide the builders preferred lender with the Good Faith Estimate provided by the buyers loan officer. (presumably to have the preferred lender LO try to match it. I’d love to dissect the final HUD’s on those transactions.)

To me, at first blush, two things come to mind. The builders lending partner is giving kickbacks to the builder in one form or another and the disincentive for the buyer to obtain financing elsewhere is off the chart. Smacks of RESPA/HUD violations, but perhaps I’m mistaken.