Question Details

Samanthacouc…, Home Buyer in Mitchell, IN

Can i get earnest money back?

Asked by Samanthacouch29, Mitchell, IN Sat May 5, 2012

My loan officer told me I qualified for a conventional insured loan and I put that as a contingency on my purchase agreement. However, I found out that I don't qualify and that the pre approval letter he sent out was for an FHA. The home isn't in bad shape but needs a lot of work to qualify for an FHA (it was built in 1892 and has peeling wallpaper, unfinished floors, and peeling paint). Now, we don't want the house because we would have to put a lot of work into it before it could even pass an FHA appraisal. The seller's real estate agent refuses to return the deposit even though our loan officer sent a letter saying we don't qualify for pmi. Can they keep the money? How do we get it back?

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Answers

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Good answers so far...read your contract and discuss with your agent. If your contingency is for a Fannie or Freddie loan, and you do not get PMI where needed, the loan is dead, you should get your earnest money returned.
For FHA financing, you also need the FHA Addendum, without it, you should receive your earnest money. In terms of not passing the FHA appraisal without YOU doing "a lot of work", unless you signed some agreement, there is nothing to compel a buyer to put one ounce of work into a home before purchasing. If the seller chooses NOT to bring a home into compliance of FHA, you get your $$ back. You should still have an appraisal contingency even if your loan contingency has passed, and perhaps even a home inspection contingency. Either will cost you a bit, but I am guessing if one or the other gets your earnest money returned, you will be happy.
I would also consider firing your loan officer. It sounds like they are doing you no favors.
Best wishes, Jim
0 votes Thank Flag Link Sun May 6, 2012
Good morning Samathacouch29

Bottom line it's in the terms of the contract and laws within your state. I am a Realtor not an attorney and to get a legal opinion based on the laws within your state you will need to contact an attorney if your Realtor is not able to negotiate and work out the terms of the "release" of the contract and earnest money. Typically for earnest money to be released to any one it has to have a release signed by both buyer and seller agreeing to the disbursal of funds. That being said:

Does the purchase agreement specifically state conventional financing?

The confusion appears to be what was actually in the purchase agreement and what was provided by the loan officer and was submitted with your offer.

Typically if the purchase agreement states subject to conventional financing that would be the contingency you did not meet. However it appears the preapproval provided was for FHA and that is what the sellers and their agent have actually seen so they do know you can qualify for the loan via FHA. If the contract clearly states conventional and the rejection letter states you do not qualify for the loan the preapproval letter was for, then the financing contingency is not met.'

Was the FHA appraisal completed? If so, and you are listing the items that were made contingent for the financing as listed, it doesn't mean you have to do the work to get the loan, the seller owns the home and plays a part in the process as well. The only way you can even do the work is with the seller approval.

If this is a little bit of buyers remorse because of the amount of work pointed out to you, if the seller completed the items necessary for your to obtain financing would you still be interested in the home?

As you can see there are a lot of factors you should think through and review with your Realtor if you have one. If you are unable to come to an agreement you will need to consult an attorney to have the situation reviewed and advise you on your options available to have your earnest money returned.

Good Luck! Buying a home is not for the faint of heart as it is an emotional roller coaster with a large price tag.
0 votes Thank Flag Link Sun May 6, 2012
If in your contract you said that the condition to make the purchase was for you to get this loan and you did not remove this contingency during the process then you should be able to get your deposit back afetr cancelation even if it went pass your contingencies period. Your seller's agent should have demanded that you removed those contigencies when the time expired in order for the seller to keep your money after cancelation.
0 votes Thank Flag Link Sat May 5, 2012
Read through you purchase agreement to see if there is any terminology regarding withdrawing your offer. I believe each state probably has its own rules concering your earnest money issue. In Grand Rapids, Michigan, each buyer has 10 days from the date of the final purchase agreement to withdraw for any reason. Most buyers get a home inspection during the ten day period and withdraw if needed. I would contact a real estate professional for assistance. Good luck!

Cindy Schlee, Realtor
Grand Rapids, MI
616-558-9595
cindyschlee@grar.com
http://www.cindyschlee.com
0 votes Thank Flag Link Sat May 5, 2012
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