Can You Back out of Buying a House Before Closing?
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It’s not uncommon to make an offer to buy a house and then find yourself wondering if you’ve made a mistake. When that happens, and you’re sure it’s more than just the jitters, here are your options for backing out of the agreement to purchase.
Withdraw the offer
If you’ve made an offer, but the seller has not formally accepted it and signed the paperwork, you can still withdraw it. You have to make sure the seller’s agent knows so that they can inform the seller. Another similar instance is if the seller makes a counter offer. If you do not agree to the new offer, you can refuse to accept it and the deal is over.
Most purchase agreements include a contingency for securing financing. There are specific requirements you have to meet. The first is you must apply for your mortgage within a certain time period. Often, it is within 72 hours of the offer being accepted. If you have applied and do not qualify for a mortgage, you can get any escrow or deposits refunded back to you.
Because sellers do not want to go through the hassle of working with an unqualified buyer, they will often request a loan pre-approval letter from your mortgage lender at the time the offer is being made. This ensures them that chances are high you will get approved.
Purchase agreements also include an inspection contingency. You can back out of buying a house before closing if you do not like something uncovered in the inspection report. This is why it is important to get a home inspection before moving forward. Often, a lender may require it as well, depending on the type of mortgage you apply for.
The does not necessarily allow for the cancellation of the contract for minor repairs equaling a small dollar amount. For example, the seller can decide ahead of time that they are willing to pay up to $1,000 of repairs to keep a contract intact. If a minor repair is discovered during inspection and they pay to have it fixed based on the agreement, then you may not be able to cancel without penalty. However, if a major repair is discovered and you are no longer interested because of it or the seller will not work with you to resolve it, you can back out.
Sometimes during an appraisal, the value of a home comes in lower than the offer price. For example, if you have a purchase agreement with a selling price of $500,000, but the appraisal comes in at $450,000, then you have the option to back out of buying the house. Sometimes a seller can counteroffer and lower the selling price. Other times, they may ask the buyer to split the difference. In that case, the seller would lower the selling price a bit and the buyer would put more money down.
There are even cases in which the buyer wants a house so much that they will pay the entire difference in order to secure the purchase of the home. However, you must keep in mind that your lender will only approve you for the appraisal amount. Anything over that amount is your responsibility.
Loss of deposit
In the end, you can just walk away and lose your deposits and pay for any expenses incurred that were your responsibility. For example, in the purchase agreement it may be outlined that you would pay for the appraisal. If you cancel, you would still have to pay that cost. Depending on the amount of the deposit, backing out can equate to losing a lot of money. This is something to consider before making a final decision.
No matter the reason, you can back out of buying a house before closing. However, the costs involved can be quite substantial. If you find that you want to cancel your purchase agreement, it is important to get a clear understanding of what it might cost you. You can speak with your agent or consult with a mortgage expert to review your options. Backing out of a home purchase might be costly, but it may also be the best option for you in the long run.