Author Topic: Big mistake- downpayment on new house -- figuring out what to do next  (Read 4013 times)

lisabell

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Hi

This is my first post here.  I have made a really big mistake.  Too make a long story short, we put a down payment on a new  house that doesn't really work for us . Financially , we could stretch to afford it but it turns out the commute is longer than anticipated.  ( very dumb but we I checked the commute time on google maps which estimates about 25 minutes but it really turns out that is usually 50 minutes in rush hour during the school year ) .  I should have waited but I  signed the contract for a spec house for a new builder ( on Wednesday )  and changed our mind 2 days later ( Friday ) after realizing it wasn't right for us.  The contract specifies that there is no refund, so we are out of luck    So we are trying to figure out what to do next .  The down payment is 25,000 dollars and the house cost $513,000.  Do we stay in the house for a couple of years and tough out the commute ( it will be 30 minutes in the am , and 50 - 60 minutes in the pm due to the time I start and finish work)  and then try to sell,  or do we move to a cheaper apartment and just keep looking   or do we just look for a another  house?  I have been looking for a cheaper house but I haven't seen much with what we were looking for - good schools ( we don't have children but are planning to ) , first floor room to possibly accommodate elderly parents in the future .  Our realtor has also mentioned option of continuing with the purchase and then renting it out.  So stupid to work hard to save money and mess it all up in the end due to bad decision making !

baffi piu grandi

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What state

is this a down payment or earnest money?

remember Realtor works for the seller

is there stipulation if you dont qualify or appraisal doesnt come in to value money is returned?

Also is there an inspection clause in the contract? 

talk to a lawyer,

Cassie

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In most states you have 3 days to get out of any contract and get your $ back.

PoutineLover

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This is a less than ideal situation, but not the end of the world. It's somewhat alarming that your down payment is so low and that you have to stretch to afford it, you may have bought too much house in anticipation of future needs, so first confirm that you really have to stick with this purchase. Consult a lawyer cause this is a huge financial decision that you seem to have not thought out completely.
If you will be staying, then you can work on mitigating the issues. Is it possible to change your work hours to avoid the worst of the traffic? Is there an alternate route that has less traffic? What about renting out a portion of the house until you have kids? With some creative problem solving you should be able to make it work.

bender

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Real estate agents only get paid at closing, so don't listen to them! 

I would try to get out of it with the goal of getting as much of that cash back as possible.  ACT FAST!  The faster you act the better your odds.  Check local and state laws.  Consult an attorney. 

lisabell

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Hi

Thanks for your replies.   This is in North Carolina.  This a new home ( Calatlantic builder ) .

 It is a down payment ( 5% of purchase price for an inventory home for builder ) .  My real estate agent sent them an email.  ( by this time it was Monday , and the check was written on the Wednesday ).  Maybe it has to be 3 business days ( for 3 day contract clause )  because she said they refused.  Anyway,  the contract says that all down payments are non refundable and they are sticking by that.   

This coming Wednesday it will be 2 weeks, so I think any window of opportunity has passed.

There is no way I can change work hours.  I am pretty sure the commute will be an hour because I talked to someone who works at the same place who actually recently sold her house due to crazy commute and lives down the street from where our new purchase was  ! How ironic - which I had talked to her before.  She was the one who told me that the commute is actually 50- 60 minutes no matter what route you take  in the school year.  And then I checked it out myself by changing depart times/days   on google maps  ( the commute time  is always 30 min to 60- 70 minutes no matter what route but she said it always around the 60 minute mark ) .

Yes, I was thinking that we should to find someone who wants to live on the main floor . Haven't had any roommates in a while ,but you gotta do what you have to do!!

bender

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I would give up 25k before getting roommates, but that's me.  It's like trading one bad situation for another.

You can still make a deal with the builder.  After you consult with an attorney, maybe they would advise you to offer some sort of split.  After all there are terms of the contract you can be a stickler for as well, like inspections, etc.  There could be some issue between now and closing that will let you back out.  My first thoughts are around the appraisal and securing financing.  If you're stretching your budget there's a chance your financing will be denied.

What contingencies are in the contract?

GizmoTX

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I'd do whatever I could to walk away at this point. If you are already stretching to pay for this house, you will be appalled at all the extra expenses that a new home requires, such as landscaping, yard equipment, fence, window treatments, fireplace screens, etc. Chances are your apartment furniture won't be a good fit & you'll want to add or replace. A killer commute is the deal breaker.

Yes, it's $25K gone, which really hurts, but it's comparatively nothing if you really can't handle the expenses AND the commute.

Our first home purchase was new construction during the 1970's, and not only did the builder go bankrupt in the framing stage, the bank had advanced him money on our house which he illegally spent trying to finish up & sell several others. Then the bank wanted that money from us to continue the build with another contractor, final price unknown. That's when we walked away, forfeiting our down payment, which was 10%. Best thing we ever did.

Several lessons learned:
We had a great contract, but it doesn't protect against mismanagement of finances or construction.

Never build on property that you own; the bank financing the build will have a lien on it as soon as construction begins. When we realized this, we sold our land to the builder as part of the deal so we wouldn't lose our land price too, never dreaming the builder would actually fail.

Don't build your first house -- buy one already up & proven. We ended up buying a 6 month old house that cost half of the house we lost, & later sold it for twice what we paid. That first house taught us a lot about maintenance, improvements, & what we wanted in a subsequent house.

Try for the shortest commute possible -- don't trade the time of your life for a seemingly lower house price.
 
If you do decide to build a house, investigate the builder thoroughly. We discovered one prospective builder had 26 lawsuits against him for construction mismanagement & didn't go forward. Later on, Sandra Bullock successfully sued him but I doubt she ever recovered any of the 6 million she lost because the house was uninhabitable. When we did eventually build, we insisted on the builder providing evidence of the release of subcontractor mechanic liens with every payment. We are still friends with our builder so a good business relationship is possible.

lisabell

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Thanks everyone for your  replies.

I am pretty sure  the loan and appraisal will go through.  I look really good on paper because I have saved a lot for new house and have A+ credit. .  It is just that with our life goals, it is not best fit.  Basically, I am the main breadwinner and pay all the bills now and make excellent  money now but that is dependent on me working at this current level( full times, long hours ).   We didn't put my husbands name on loan application because he is self employed and business is not profitable now.  But, we can wipe out our savings to make monthly payments less.  That would take pressure off of us but I don't feel so comfortable with that.   

The only way the contract doesn't go through is if the loan application ( financing is also though CalAtlantic ) is denied.  No chance of that due to my great financial track record up to now.  There is probably a clause for appraisal as well but I don't think the home is overpriced.

I will look into attorney option but a little hesitant due to me signing a contract.  It looks pretty airtight and I might just be wasting more money 

waltworks

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This might sound weird, but there are some things you can do to mess up your credit pretty fast, if you want to try to get your financing denied. Whether it's a good idea or not... don't know.

-Open a bunch of credit cards. I mean a bunch. Close your cc's/accounts that have been open for a while and get your average account age down to a few months (quick, quite harmful to your credit score).
-Deliberately don't pay some minor amount on a few of those credit cards (probably will take too long but can really hurt credit score) or alternately don't pay some other revolving account that will get reported to the credit bureaus.
-Close credit cards with high spending limits until you get your total credit down pretty low, then put *all your spending* (maybe manufacture some spending if you need to) on the remaining cards to get your credit utilization up to like 90%.
-Insist that your husband be added to the application.

-W

Dee18

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It is not clear to me (sorry if I simply missed something) if you are sure what the consequence is  if you do not go forward.  Do you just lose the $25000?  If so, I would walk away.  You seem to be very clear that you do not want this house. 

Jon Bon

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How about getting a smaller more reasonable house in the same hood or a different hood by the same builder? I would assume the builder would rather build you a smaller house then just walk with your down payment money? You might have to pay and extra few thousand to pull this off, but you would be no worse off than you are now.

+1 on NOT listening to ANY realtor.

+1000 on talking to a lawyer, contract might look iron clad to you but my guess is you are not an expert in contract law.

You are already out $25k worse case, its worth it to talk to some pro's on this.

pbkmaine

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Talk to a lawyer. Today.

lisabell

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I have a list of real estate closing attorneys-- I am assuming this would be the kind of lawyer  I need to talk to .  I am going to call around and see.  I will see if I can get my husband added to the loan application.  They told me that they will not check my credit score again prior to closing so even if my credit score dropped it wouldn't matter.  They do a soft pull. he said just to see if I have incurred more debt prior to closing though so that might have an effect.  That would be hard to run up debt and then get rid of debt later. unless I put some crazy stuff on my credit card right before but canceled before it was delivered. something like that. 

Thanks everyone. I wanted to make sure I have thought of all options before I either live in a house that doesn't work or just walk away from the money  . I will check to see about other Calatlantic locations that they are building.  I never thought of that . 

hope2retire

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Can you see options to transfer it to a new buyer who may be interested for 20k instead of 25k that you paid. this is too much to lose.

sokoloff

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Thanks everyone for your  replies.

I am pretty sure  the loan and appraisal will go through.
...
The only way the contract doesn't go through is if the loan application ( financing is also though CalAtlantic ) is denied.  No chance of that due to my great financial track record up to now.  There is probably a clause for appraisal as well but I don't think the home is overpriced.
I can almost assure you that you have control over whether your loan is approved. Tell the underwriter that you have no intention of paying as agreed, or slow-roll the paperwork, or don't provide it all on privacy grounds, or whatever.

Maybe have a quick consult with a local real estate lawyer to make sure you stay on the right side of the law, but you have an awful lot of control over whether you get a loan approved; you will have to do a lot of gymnastics to get the loan paperwork in order and I suspect you'll be able to make a few mistakes along the way that will make the loan application be denied.

BrandNewPapa

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Another option not discussed is making a deal with the builder.

They may be open to giving you a partial refund and let you walk away. This would allow them to get some money from you, and still resell the house. It is a win-win for both sides.

I would explain that your husbands job is not profitable and you are concerned about your job stability. It sounds like the builder is also the financier. They want you to pay the mortgage and not have to foreclose. I would tell them you'd give them $5000 of the downpayment money if they let you tear up the contract and walk away (giving you $20,000 back).

You might be surprised how willing they are to negotiate if you tell them you don't think you can afford it.

Cwadda

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I have a list of real estate closing attorneys-- I am assuming this would be the kind of lawyer  I need to talk to .  I am going to call around and see.  I will see if I can get my husband added to the loan application.  They told me that they will not check my credit score again prior to closing so even if my credit score dropped it wouldn't matter.  They do a soft pull. he said just to see if I have incurred more debt prior to closing though so that might have an effect.  That would be hard to run up debt and then get rid of debt later. unless I put some crazy stuff on my credit card right before but canceled before it was delivered. something like that. 

Thanks everyone. I wanted to make sure I have thought of all options before I either live in a house that doesn't work or just walk away from the money  . I will check to see about other Calatlantic locations that they are building.  I never thought of that .

No, don't just get a list. Find a lawyer that you know and trust, or use a lawyer that has worked with your family/friends for a while.

Ocinfo

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Consult a lawyer. You're dealing with a $500k asset so a little lawyer money is well spent. If you can't get out of the contract without losing full $25k then you can possibly find a buyer to take over the home. I would likely (pending lawyer review) make it clear to builder that it's not worth $25k to have to deal with you as a customer. Essentially every deviation from contract will result in a demand letter from lawyer. You'll have an independent contractor review everything they do and again, another demand letter to actually do it right. Any variation from written agreement will result in another legal interaction.

All of this is assuming you, in good faith, signed the contract but then changed your mind within whatever legal maximum time NC permits. If that's not the case, either eat the $25k, find another buyer, or reach a mutually beneficial agreement with builder (they keep $5k or they refund full amount once a new buyer closes on home, etc...).


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lisabell

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Hi everyone.

So I talked to a lawyer.  There is no 3 day rule or cooling off period that applies to contracts for new home purchases in North Carolina.  North Carolina has a  3 day cancellation period for certain contract  but it doesn't apply in this case.  Once you sign a new construction contract , it is binding immediately.  In my case it was a spec/inventory home for a new builder that was already half built ( no options to change or upgrade package) , and the money required is a downpayment that is nonrefundable.  I would have gladly paid damages for a lesser amount but when my realtor went back to them on Monday they would not let us off the hook for anything except the full 25,000  deposit .  (  I signed the contract Wed night after 5 pm ) .  The home was off the market until the following Monday morning but they have a clause in the contract that says they are entitled to the full downpayment  irregardless of how many days have passed from the time you sign the contract to attempting cancellation.  It is called a liquidation of damages clause and it is in effect immediately ( no 3 day period ).  I would have to do a full consultation with the lawyer but he said these cases are " usually an uphill battle" due to contract containing liquidation of damages clause.  I have no idea how to find another buyer . I will have to ask my agent about that.  I am definitely in over my head with this .

Cwadda

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Hi everyone.

So I talked to a lawyer.  There is no 3 day rule or cooling off period that applies to contracts for new home purchases in North Carolina.  North Carolina has a  3 day cancellation period for certain contract  but it doesn't apply in this case.  Once you sign a new construction contract , it is binding immediately.  In my case it was a spec/inventory home for a new builder that was already half built ( no options to change or upgrade package) , and the money required is a downpayment that is nonrefundable.  I would have gladly paid damages for a lesser amount but when my realtor went back to them on Monday they would not let us off the hook for anything except the full 25,000  deposit .  (  I signed the contract Wed night after 5 pm ) .  The home was off the market until the following Monday morning but they have a clause in the contract that says they are entitled to the full downpayment  irregardless of how many days have passed from the time you sign the contract to attempting cancellation.  It is called a liquidation of damages clause and it is in effect immediately ( no 3 day period ).  I would have to do a full consultation with the lawyer but he said these cases are " usually an uphill battle" due to contract containing liquidation of damages clause.  I have no idea how to find another buyer . I will have to ask my agent about that.  I am definitely in over my head with this .

Tell prospective buyers that you'd be able to cover $5000 of the $25k downpayment, maybe?

Kl285528

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Any other neighborhoods better suited to you, that the builder is building in? Switch to a different house, or even a neighborhood that is yet to be built? Just thinking of some options that could be win win for you.
Or, would they even build you a one off house on a lot that you find, in a location that works better for you?

Fuzz

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Talk to more lawyers. They should be more willing to work with you. So someone told you they would keep the deposit. So what. Keep going up the food chain at the builder. Also, you +1 to the idea you can tank your loan application--that's not hard. After we signed final disclosure docs, our construction lender required my wife to come up with her college transcript (over 10 years since graduation) as a condition of closing.

MommyCake

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I agree with the temporarily lowering your credit score, if your are SURE you get your deposit back if they deny you the loan.  I would:
1) immediately get an unsecured personal loan for the max amount you can get
2) start using credit cards for all purchases and make only minimum payment
3) do anything possible to increase your debt to income ratio.
In my opinion, paying a little interest for two months would be worth the return of my 25k.

TheOldestYoungMan

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This isn't complicated.

You start saving as much as you possibly can now.  If it was at all difficult to save up 25k you cannot afford a half million dollar house.  You are going to need as much money as possible to weather this mistake.  As others pointed out, you can easily spend 4-5k the first year after buying a builder house, even if you DIY on everything.

You go ahead and list the house as for sale, and just deal with having to compete with the builder.

You move in/live in the house until you can sell it.

An hour commute for a little while isn't actually that costly.  Yes it will suck, but it'll probably be the highest paying part-time job of your life.

With any luck, the neighborhood will take off and you'll maybe even make some money on the property when you sell.

Alternatively, you could try renting the place out to someone else.  So instead of a 25k mistake on your housing it becomes a 25k unplanned investment.

A lot of the advice on here regarding tanking your credit or going to extraordinary measures to not fulfill your side of the contract are worrisome to me, because all of that would constitute bad faith actions on your part, attempting to circumvent the terms of the contract.  Difficult but not impossible to prove.  And if you screw up any of them, could risk permanent damage to your financial reputation costing you significantly more than 25k down the road.
"Whenever you are presented with the opportunity to pee...pee." - Advice from my grandfather. 

At a fundamental level, it's all gambling.  Would you rather bet your money or your time?

20 months to go!

Ocinfo

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This isn't complicated.

A lot of the advice on here regarding tanking your credit or going to extraordinary measures to not fulfill your side of the contract are worrisome to me, because all of that would constitute bad faith actions on your part, attempting to circumvent the terms of the contract.  Difficult but not impossible to prove.  And if you screw up any of them, could risk permanent damage to your financial reputation costing you significantly more than 25k down the road.

I agree. I actually suggested the opposite of the "tank your credit" advice. I suggest making it clear that every single item will be reviewed by a lawyer and a your contractor will inspect the home to produce a list of items that weren't done right. Basically, make it not worth the hassle to have you as a buyer. There are so many mistakes made by home builders that they really don't want anyone knowledgeable constantly looking over their shoulder.


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Cassie

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The problem with trying to sell a new home is that the builder can sell it cheaper then you because of realtor fees. I would move in and wait for the entire subdivision to be built and eventually you will be able to sell and get what you paid and the realtor fees.

rachael talcott

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Standard home sale contracts include an inspection contingency that allows you an out if you don't like the results of it.  Find the pickiest inspector you can and pay them $400 or whatever to do their thing.

Finallyunderstand

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Finding something wrong in a home inspection doesn't automatically give you an out.  You have to give the seller the option to first remedy it.  If they don't, then there is an out.  You can't simply find something and say, "welp, I'm out". 

Paraphrasing Indiana's contract clause regarding inspections but the defect has to "significantly affect the health of safety of the occupants and/or significantly affect the value or life expectancy of the property if not repaired or replaced".  That's not to say a new home should be able to have a lot of cosmetic defects.  It should be very near perfect, but sellers always have the option of remedying the issue without an automatic contract default.

ezd2027

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My experience with national builders was they attempt to hold all the cards, I backed out of 2 deals with national builders and decided it was too high pressure for a reason. One deal I had given them money, but did not sign anything until we had agreed upon a attorney review period...they tried to tell me no need but my Realtor was actually watching out for me. We ended up canceling when they would not agree to adding appraisal contingencies and financing contingencies (was not going to use their in house lending which is a form of more control for them). We were ready to accept the fact I would have lost $20k, luckily we did not.

You did not answer if you had any contingencies in the contract? I am guessing no, you accepted the standard builder contract?
Lesson one, consult an attorney before signing anything on a house. Your realtor should have known better, but maybe the laws are different in NC.
lesson two, it sounds like your realtor is not looking out for your interests, only theirs. It continues when they tell you oh, just go through with it an rent it out. my negative side tells me this is code for, hopefully I get commission when they sell it too.
lesson three, do not take a builder's in-house financing, it is a form of control over you.

I would not screw up your credit over this, with in house financing I bet they will make sure it goes through somehow.
I personally would not continue with the purchase, renting might seem like a good idea, but you will not be able to buy another house anytime soon (takes 3 years to count rental income as 75% income I think for underwriting?)
Reason number two for not buying, it will probably cost you more than 25K to sell it if the house is this much, factor 10% of the price of the house so 50K maybe? No one mentioned this, and some assumptions you will make money on the house assuming it appreciates. No one here knows what the area is like, how many more homes does the builder have left, are there any other new subdivsions nearby going up for competition, etc.
If you cannot find another house with this builder closer and work out a deal, maybe the best idea is to forfeit 25K now for lesson(s) learned? I don't know how long it would take to build back up 25K for you though. I also have no idea how YOU would deal with a long commute, around Chicago, it is not uncommon for long commutes, not saying that is right way.
« Last Edit: July 12, 2017, 12:09:13 PM by ezd2027 »

lisabell

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Well we looked at all options. We were pretty  much ready to lose the money but our realtor has a proposition.  We live in the house for a few months and then sell.   she would sell for 4%.  3% to the buyers agent and 1% for herself.  She thinks she will be able to sell it for higher than our buying price and we would not lose money.  We are looking at all cost involved to see if it makes sense. 

This was a standard buyers contract without any contingences.  The lender is the builder so they do indeed pull all the strings. 

bender

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4% of 500k is 20k.  That's just the real estate commission to get out of the property.  What about tax stamps, etc.  I think it was said above, don't listen to the real estate agent!  She stands to make a lot of money by selling the house twice.

What about closing costs on your mortgage, tax stamps, insurance, etc.  It is an insane proposal by your real estate agent.  Completely selfish and she does not have your interests in mind at all.

Give up the 25k and take it as a lesson learned.

Cassie

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Homes for sale while the builder is still building never sell without a big loss. Plus people want to pick out their own flooring, etc and yours will be what you picked.  She just wants her commission and once she gets it does not care if she can sell your house.  You will lose more then 25k on that deal. I would either walk away or live in it a few years until the builder is all done building. 

Ocinfo

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Well we looked at all options. We were pretty  much ready to lose the money but our realtor has a proposition.  We live in the house for a few months and then sell.   she would sell for 4%.  3% to the buyers agent and 1% for herself.  She thinks she will be able to sell it for higher than our buying price and we would not lose money.  We are looking at all cost involved to see if it makes sense. 

This was a standard buyers contract without any contingences.  The lender is the builder so they do indeed pull all the strings.

Just no. Either go ahead with the purchase and live in the home or walk away now (assuming all earlier suggested options have been dismissed).

You're chasing sunk costs, which rarely works out. Is the realtor willing to put this reduced fee in a contract? Another thing, you might have financing issues (depending on loan type/terms), since you're knowingly purchasing the home with no intent to live in it.


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SnackDog

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Where is the down payment? In escrow or with the builder? If it is in escrow you can fight for it. Long battle but can only gain from it if you are considering walking away.

dilinger

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4% of 500k is 20k.  That's just the real estate commission to get out of the property.  What about tax stamps, etc.  I think it was said above, don't listen to the real estate agent!  She stands to make a lot of money by selling the house twice.

What about closing costs on your mortgage, tax stamps, insurance, etc.  It is an insane proposal by your real estate agent.  Completely selfish and she does not have your interests in mind at all.

Give up the 25k and take it as a lesson learned.

Also, get a different realtor for your next home purchase.

LurkingMustache

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I don't really understand how your down payment could also be your earnest money unless you already closed on the house.  Maybe I missed that in the original post, but it seems like you should be out earnest money but not the full payment.  In Texas earnest money payments are normall ~1,000.  If the builder has some contact that made the payment unrefundable I'd find a lawyer because it seems like a ridiculous contract to me.

bender

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I think essentially OP gave their down payment as earnest money.  This may be common in new construction when the lender is the builder?  If not, the real estate agent/lender acted unethically in advising such a large amount of forfeit-able cash down.  Maybe that's good argument to get a buyers agent.

Lmoot

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A real estate agent should never ever ever ever ever ever try to steer a client towards a specific house. Particularly when a client already shows remorse in agreeing to a purchase. I would think very hard on how you actually got here, and the real estate agent's part in the initial decision.

 The agent is trying to get paid twice and packaging it as if they are doing you a favor. They sound skeevy as hell. I'm sorry. Was this an agent  representing the builder? If so, steering a client towards a particular house is illegal, and you might have some recourse based on these latest comments they're making trying to convince you to go ahead with the sale, then essentially bribing you by dangling a carrot to use them, to sell it again. That's 50 shades of shay-DAY!

FinallyAwake

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This house is costing you:

$25k down payment
$10k? closing costs
$10-15k? furniture/decorating/landscaping costs over the time of ownership
$20k realtor fees @ 4% at selling IF you can get $500k (doubtful, since it's in a new build out community)
$5k more closing costs
$xx is there an "exit" fee?  Lots of these new communities will charge you a percentage when you sell, usually around 0.5% of the selling price
2 hours commute time every day

If CalAtlantic won't let you transfer that down payment to a community closer to your work (and a smaller house), it seems like walking away is in your best interest.

That's a huge chunk to walk away from, but you're young.  You can be smart and work hard and have that money back in no time.

partgypsy

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That sounds like it really really sucks, but given what you said about unfeasableness of house (it won't get better) and what the attorney advised, the best advice might be to walk away, if there are no developments closer to where you want to live by the same builder and they are willing to transfer your down payment. It really sucks, but better to rip off the bandaid. Having such a huge downpayment that is non refundable to me sounds sketchy, but it is said and done.