Home Buying in Union City>Question Details

Geshu, Other/Just Looking in Jersey City, NJ

Is there a catch here?

Asked by Geshu, Jersey City, NJ Fri Aug 22, 2008

I have signed a contract on a newly constructed condo and have been approved for FHA mortgage. however we were unable to close on the said date because condo is still in the process of getting the FHA approval. On the other hand, my rental lease will be up and I need to move out. The builder is offering to let us move in the condo for little or no rent while we wait for the condo project to be FHA approved. Has anyone heard of this? What consequences can this have? What issues I have to think about? Does ths sound too good to be true? I would greatly appreciate any advice.

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Geshu:
The devil is in the details. Frankly, once you move in, the seller is at a disadvantage and would have to go to court to get you out. If, on the other hand, they do not get FHA approval, you will find that you have endured the expense of moving and its concomitant disruption, only to be forced to move yet again, although only after a protracted wrangle, unless you can obtain a conventional mortgage. Finally, I can't imagine that you will be allowed to move in without some sort of written agreement. The details of this agreement are where the devil lurks. Do NOTHING without legal advice. This is a squirrelly proposition at best.
1 vote Thank Flag Link Fri Aug 22, 2008
I really appreciate everybody's input here. First of all, I was represented by a real estate broker and an attorney for the contract. There was no such thing as FHA mentioned in the contract. However, the sellers well aware that were going for FHA loan because we asked if the construction is FHA approved. They said it is in the later stages of the approval process and should have approval any day. We ended up signing the contract and a date to close was scheduled. We had everything ready - the only problem was that the building has not yet received the approval and the underwriter could not clear the loan to close on the closing date. Therefore it is not my fault we were not able to close but theirs. The sellers agent was sugar-coating on the timeline of FHA approval.

Now my broker floated the idea to sellers broker regarding me moving in possibly rent-free. The seller's broker spoke to the builder and came back to us saying to ask our lawyer to draft an agreement. Currently the lawyer is in process of drafting an agreement - that will be the most important thing to see once it is on paper.

In terms of researching on the builder - i called up HUD to see if they have any claims or complains but they said there were none against the builder.

William - you have been playing devil's advocate and I like that! thanks for you advice. I will make sure the points/clauses that you have mentioned are somehow addressed in the agreement that my lawyer drafts. I will update once I have the draft. Please let me know if anyone can come up with some more points on this. Thanks a lot!
0 votes Thank Flag Link Fri Aug 22, 2008
I am guessing that you purchased the condo as an unrepresented buyer.
At this point, I would recommend talking to a real estate attorney before moving or signing anything else.
I am curious to know why he does not have FHA approval.
I am also concerned about you taking possession before the builder has fulfilled the terms he agreed to in the real estate contract. Please take the contract to a real estate attorney so he can interpret if the builder has defaulted and advise you on what your options are. If it were me, I would also do some more research (or ask the attorney to) on the builder.
Hopefully this is only a small glitch involving government red tape; but it could also be that something is terribly wrong.
Good luck to you; hope everything works out well.
0 votes Thank Flag Link Fri Aug 22, 2008
I had a client do just what you are talking about. He is waiting for FHA approval also. He moved in for half of what his monthly payment would of been on a 6 month lease. He does not have to pay assoc dues either. I guess this is a good thing as long as the builder gets fha approval. You won't be able to get a loan any other way I take it. If FHA falls through you will be only renting and the builder no longer would have a new unit. My client signed a 6 month lease.
0 votes Thank Flag Link Fri Aug 22, 2008
You need to talk with not just an attorney but your lender to see if they would even ALLOW the free rent situation to be used to add to your down payment money. They may not.

You are getting a whole bunch of advice from people (including me) that don't have all the details. Unless you really WANT to get screwed talk to your lender AND A REAL ESTATE ATTORNEY.

Paul Howard
0 votes Thank Flag Link Fri Aug 22, 2008
Geshu:
Unless you can magically turn three months of condo fees into 17% of the purchase price, discount free rent there as part of the deal. On the other hand, would the three months savings ad up to what it will cost you to move in and out? If so and you want to take a crap shot at it be my guest. My darker side suspects that the three months free sounds too easy. Look for fish hooks beyond just walking away. For example, suppose that failing to buy will result in rent due for the period and still no FHA deal?

Your seller has a bigger problem. If no FHA deal, few first time buyers, little interest in more established households who want bigger, not smaller and few downsizers interested with so much "over 55" stuff avaiable so inexpensively these days. You well might just wait him out.
0 votes Thank Flag Link Fri Aug 22, 2008
while I wait to see the draft of the agreement - I have another dilemma. If I get my landlonrd (who is very nice) to agree to let me stay beyond my lease on month-to-month basis, should I still move into the new condo (i have been informed that it will be rent-free - yet to get in writing though) I have couple of scenarios playing in my head now and would greatly appreciate your input.

1. my landlord lets me stay on month-to-month basis and builder allows me to move in rent free. What should I do? stay in my rental or move to the new condo?

2. If I get to stay in condo for rent free for lets say 90 days - I save 90 days of rent and can MAYBE add to my downpayment to get conventional loan (currently I can only offer 3%) if the building does not get FHA approval and then MAY BE refinance to FHA??

Basically I believe the condo is a great investment and I am sick of paying a rental that equals a mortgage payment. But I also dont want to move in and then have to move out of the condo because of the FHA thing!
0 votes Thank Flag Link Fri Aug 22, 2008
seller will surely have you sign some sort of agreement. You will likely also have to do a final walk thru accepting conditions though you can make a punch list which is normal for new construction to be completed with in a specified time. The certificate of occupancy may be a temporary or permanent but in most cases the seller is really the one with the most to lose. (evicting you is costly and time consuming if you decide not to close). Confirm with your attorney and go for it
0 votes Thank Flag Link Fri Aug 22, 2008
I think the biggest issue is certainty on FHA approval for the condo building/community - without it, your financing could be in jeopardy.

Good luck and best,
Jeannie Feenick
Search and connect at http://www.feenick.com
Web Reference: http://www.feenick.com
0 votes Thank Flag Link Fri Aug 22, 2008
Anything can happen! The state of the industry is such that builders are anxious to get every deal completed. Just be aware that almost there only counts in horeshose and Abombs. Almost FHA IS conventional. What happens if it never gets to FHA? It should all be spelled out.
0 votes Thank Flag Link Fri Aug 22, 2008
Make sure it is just the FHA approval they are waiting for and not a CO. You can't move in at all without a CO on new construction. Don't move in without something in writing and include a provision that they have to pay your moving costs if they don't get the approval within a certain timeframe and as was mentioned below.....have a real estate attorney review the issue paperwork.
Web Reference: http://www.naeba.com
0 votes Thank Flag Link Fri Aug 22, 2008
Thanks, William. They say they are in the later stages of the process to get the approval. The sense I am getting from my real estate broker is that they understand that we were not able to close not because of any fault of mine but really theirs. The seller's agent had been telling us that the condo will FHA approved any day and it didnt happen yet. So they are trying to make it right by saying that they can let her move in until it is approved. Also, I cannot go the conventional loan route and have made this very clear to my broker. IF it does not FHA approved, I will not buy it via conventional route. They are obviously trying to see the legalities of it.. I will read the agreement once I receive

But have you heard of anyone doing something like that where the builder lets you move in like in my case. Is he being nice or there might be ways that I can be screwed as a buyer. It is my first time buying a house...and Its just not going the way I had in my mind!
0 votes Thank Flag Link Fri Aug 22, 2008
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