When Is It Too Late to Back Out?

by Ashley Wirgau

Buyer’s remorse is seriously the worst. That 80-inch television was just so dazzlingly clear, magical even, hanging on the Best Buy wall. And 10 percent off? Who could have passed up such a fantastic deal? Obviously, not you.

But unlike pricey electronics that can be placed back in the box and returned to the store when your good sense has resumed (always keep those receipts!), that over-budget dream house or better-snatch-it-quick fixer-upper isn’t so easy to give back. When it comes to buying a home, there really is a point of no return, so make sure you know where that is because there’s no box big enough to fit the four-bedroom, two-bath ranch when you change your mind.

The Earlier, The Better

When it comes to backing out of a mortgage, it is best to do it early. There is little harm in house hunting, securing pre-qualification letters, and even making an offer or two on your favorite properties. All of these steps can be walked back, and while your realtor might be a little irritated, there’s really no harm in changing your mind on the front end of the home-buying process. The bargaining stage is a fairly safe space to just step out of if you don’t feel inclined to continue with the purchase of a home. As long as you are still in the negotiating phase, the consequences of backing out are next to none.

Better Late Than Never

Once your offer is accepted, and a purchase agreement is drawn up, though, you are expected to hand over a good faith deposit (also known as earnest money) to assure the seller you mean business. This amount tends to be minimal, typically averaging under 5% of the overall purchase price; however, on a high-dollar house, this could still put buyers into the tens of thousands. Once that money is exchanged, it is difficult to get back without a viable reason, “cold feet” not tending to be one of them. Should a home inspection go awry, or an appraisal come back too low, you should have grounds to stand on, but make sure the purchase agreement allows for these reasons for retraction if you aren’t inclined to wave farewell to a considerable deposit.  

Better Lawyer Up

Now, if your indecisiveness takes too long to grab hold, you might find yourself in a bit of a pinch. Once those closing papers are signed, there is little recourse available for a change of heart. For folks heading into a refinance, there is a three-day window in which the mortgagee can back out, providing the refi is on a primary residence. For a traditional mortgage, however, once those papers are signed, the house and that big loan are pretty well set in stone.

Often, folks who decide to rescind after the ink has dried are left with weighty damages to pay or are deemed responsible for costs incurred by the seller as the property in question was pulled from the market for a time. A significant change in finances (such as divorce and job loss) or false claims made by the seller (incorrect property lines, extensive undisclosed issues with the home, etc.) may increase a buyer’s chances of avoiding such penalties. Again, make sure that the purchase agreement is fairly comprehensive. Unfortunately, if a buyer’s reasons for wanting out are not iron-clad, it may be cheaper to simply follow through with the purchase and turn around and sell the home instead.

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Buying a house is one of the biggest financial moves a person will navigate, and no one wants to spend thirty years following the closing regretting the decision he or she made. Luckily, the time to find a house, negotiate the sale price and terms, secure a home inspection and appraisal, and then successfully close the deal takes at least a solid month or two. Use this time wisely, but be quick about it because when it comes to mortgages, there is no return policy. The sooner you bail, the less painful the back out will be.

 

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