Dear Michael: The buyers for our home have decided to cancel their purchase. This has left us in disarray. Can a seller have reason to sue a buyer for backing out of a house purchase?
Answer: That depends on the reason and when they are backing out.
If the appraisal is satisfactory, the home inspection was resolved, the lender approved the loan and the buyers removed all contingencies (conditions) in writing then, for one reason or another the buyer just woke up one day (or possibly found another home) and decided NOT to go through with the purchase, then yes, the seller may have good reason to sue the buyer.
This is called “Specific Performance.” This action does not happen often. However, it does happen.
You ( the seller) probably incurred expenses, such as; repairs that were required by the buyer to complete the home purchase, title/escrow, maybe even expenses on the new home that you plan on purchasing, like an appraisal and such, let alone the fact that your home was off the market for other potential buyers to look at.
There is no doubt that the seller has damages. In cases like this, I’ve seen the buyers forfeit their earnest deposit to settle out of court. Please consult a real estate attorney for further evaluation.
Dear Michael: I am in escrow on a house that has appraised higher than the asking price, is the difference distributed to the buyer at the close of escrow?
Answer: No, the difference is not distributed to the buyer. If this happens, congratulate yourself and your Realtor for being a good negotiator.
Any value above the purchase price goes into the buyer’s “back pocket” as home equity. Equity is the value in your house above what you owe on your mortgage.
You cannot borrow against the additional value. Your loan-to-value (the percent you are borrowing in retrospect to your down payment) is based on the sale price not the appraised price.
Down the road, when you sell your home or when you refinance your home, is when you will be able to take advantage of the additional equity you have just gained.
Dear Michael: I’m a full time student who’s about to graduate this year. My plans are to hopefully begin the process of buying a home 6 months after I start working. How will my student loans affect my ability to qualify for a mortgage? I expect to have $100,000 in student loans depts. Also I will start repaying these loans at the same time as I’m trying to qualify for a mortgage?
Answer: Like so many other graduates, you’re graduating with what amounts to a mortgage on your education.
The monthly payments on your loans will be subtracted from the total amount you can use to pay for your mortgage, property taxes, homeowners’ insurance and other debts.
Lenders will commonly allow you to use up to 33 percent of your total gross monthly income for your mortgage, real estate taxes and homeowners’ insurance payments.
If you get an FHA loan (as opposed to a conventional loan), you’ll be able to stretch those debt-to-income ratios a little higher.
It’s possible that with your student loans monthly payments, you may not be able to afford to buy anything until you’ve paid down those loans significantly.
If your income is high enough, you may be able to afford to buy even while you begin repayment.
I’d take the safe road: Don’t begin to even look for a home until you know how much you’ll be making, and what kind of a bite your debts will take out of that monthly income.
And remember—if you spend too much of your gross monthly income on your mortgage, taxes, insurance and student loans, it can leave little for your take-home pay, leaving little for anything else in your life.