Want To Change Your Financing After Contract Ratification?

You’ve presented an offer to a seller stating your going to use conventional financing to buy a home in Northern Virginia.   The seller accepts the offer and then within the time- frame allotted in the Virginia Regional Sales Contract you send over an notice stating your are changing to FHA financing.

Now what happens?

In Virginia our Regional Contract states “a purchaser may substitute alternative financing/and or an alternative lender for Specified Financing provided:

a) Purchaser is qualified for alternative financing
b) There is no additional expense to the seller
c) The Settlement date is not delayed
d) If the Purchaser fails to settle except due to any default by the seller, the the Default provisions of the contract shall apply.

The owner agrees to and signs the request for the new financing.  The FHA appraiser arrives at the property and says “oh by the way in order for you to be able to get financing on this house the owner needs to install a new roof.”  The seller says NO per the contract there can be no additional expenses.   A new roof would not have been a condition of conventional financing, therefore you could be in violation of item “B” on the contract.   Yikes.

Of course you can bet at this point reasonable heads may not prevail.  The buyer threatens, the seller threatens, lines are drawn in the sand.  Trust me it’s not a pretty picture.  And this is just one scenario where changing financing might have some unexpected consequences for all of the parties involved, I’ve heard and seen some doozies.   If you know from the beginning you want to use FHA or VA financing then be upfront about it.  Don’t think your contract is going to be rejected because it isn’t conventional financing.  In Northern Virginia the largest percentage of closings occuring right now are with FHA financing.

What you don’t want is to find yourself in a long protracted fight over who is in default of the contract and who is going to get to keep the earnest money deposit.  The unexpected chain reaction could be a very expensive lesson that you don’t want to learn.

2 thoughts on “Want To Change Your Financing After Contract Ratification?

  1. Physical conditions pointed out in an FHA appraisal is just one minor issue. I’ve never, never known a settlement to occur on time (i.e., the date written into the contract) if financing is switched. It’s like starting over from square one.

    If there is no other offer in the background or the home isn’t in one of the “hot property” zones, it’s one thing. If there’s a chance that another offer can come forward pretty quickly then switching financing may be the ticket to losing the house to someone else.

    You’re right. Pick the type of financing you want and can qualify for and stick with it.

  2. I had one case where they switched financing but didn’t send over the FHA Financing Addendum. The agent didn’t realize that this meant that on the Virginia Regional Contract that Paragraph 10 said w/o it there was no appraisal contingency. You guessed it. The appraisal came in a few thousand off the price. Guess who paid for the difference and it wasn’t me.

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