Ceno - I am trying to make sure I get this right... The mortgage broker is going to buy the house and sell it back?

Now I can understand this if it was the builder... maybe. But not on the mtg side. Call another well know mgt company first thing in the morning... get a second opinion.

Something funny is going on and I cannot tell from what you tell me where excactly the problem is.
Interest rates are normally locked for 30-60 days. Appraisers will go out and do an appraisal for value as part of the financing and if the basement was incomplete they probably do not have enough value for a loan of 320K. Do you have any records of when the rate was locked and when they agreed to finish the basement? Can you take the house without completed basement and take the original rate with a loan of 305K? It seems as though you should have options because it sounds as if they have made an error of some sort? I know nothing of Illinois real estate laws but I would ask if there was any way to save my better rate lock. Sometimes for an upcharge a mortgage bank will extend a rate lock. Good Luck Ceno!!!