I am due to close escrow on a house on July 17. Our contingency period expired on June 29 and we signed a contingency removal form at that time. I was under the impression that our loan rate was locked in at the beginning of our escrow period, however, I just found out from our loan broker yesterday that the rate was never locked and is now .5% higher than we have planned and budgeted for. In addition to the higher rate, furloughs just went into effect for defense department employees. I will be taking a 20% pay cut for at least the rest of the fiscal year, and possibly much longer. Under those circumstances, the home is no longer affordable to us. Do I have any options for backing out of the contract due to financial hardship at this point without forfeiting my earnest money deposit? Thank you.
2 Answers from Attorneys
Two possibilities. First, possibly the home's value has increased or for some other reason the seller could get more for it today, in which case you might be able to work out a voluntary rescission deal where the contract would be canceled by mutual agreement, taking care that no broker involved can claim an earned commission. More probable idea: see if your lender can give you a different loan format, e.g., instead of a 30-year fixed, ask about a seven-year reset loan.
Unless you get the seller's consent to back out of the deal, you are going to have problems. You should never remove a contingency until that contingency is met.