I am representing buyers who are in the process of relocating to North Carolina from sunny Florida. They're purchasing new construction, and it's finally complete! woo hoo!
They were pre-approved by the builder's lender for 100% financing, not contingent upon the house in Florida selling (you know how the market is in parts of Florida, a little on the slow side).
A buyer surfaced on the house in Florida-hooray! So at the first part of November, the buyers (without talking to me, oh please, buyers-rely upon us-we love to advise and help but can't help if you go off on your own!) changed loans. To do a conventional 20% down loan, which is only feasible when the equity is taken off the house in Florida-which is under contract, right?
So what happens in Florida on the house they're selling? THEIR BUYER decides to shop his loan a week before closing...discovers he was getting a great deal all along so changes his mind again and stays put, but it delays closing since the underwriter had iced the package. Closing was supposed to happen last Friday, but was put off til today.
Today we were supposed to close on the new one, but that's been delayed by the delay in Florida. Because since the loan was changed, they have to sell the old one to buy the new.
Still with me?
You might be thinking, 'so what? what's a few days here and there?' Well, it matters to this builder. In their contract is a provision that any delay on the scheduled closing will result in a penalty of 1% of the purchase price. You heard me, any delay costs 1%! I call that usury. But it's a builder contract written by builder attorneys and if you want to buy their product, you use it. I've seen a lot of contracts with a per diem on delays, but this is a large national builder who wants closing to happen when they want it to happen!
The house in Florida closed today, but the wire hasn't yet arrived. Since wires have to go through the Federal Reserve System, they can appear after 5 minutes or 8 hours-no way to know, and it's not instantaneous like email (which is a surprise to a lot of people). And this builder will NOT do a dry closing (paperwork without funds).
So the closing attorney is checking the account every few minutes, hoping the wire shows up. Because if it doesn't appear in the next two hours, they close tomorrow and pay a whopping $2100 in penalty. Over a few hours' delay-and no skin off the builder's back since they wouldn't have the money til tomorrow ANYWAY (since in NC funds can't be disbursed until recordation has taken place).
Why do I suggest that you not change your loan at the last minute? Because if this buyer had stuck with the original 100% loan, they wouldn't be faced with a $2100 penalty-they would have been able to close on time. The rate difference? 1/8%. And they could have gone back and refinanced a little while after closing and gone to the conventional 80% product. Think through the process and all the things that can crop up. Any experienced real estate broker can tell you that no contract is secure until it's closed, recorded, and money is in the bank. Things just happen, outside of your control. So rely on us-talk through these decisions and ideas, even if you think you're wasting our time-you're NOT wasting it at all, most of us WANT to help and want to be that trusted advisor.
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