penalty if back out before closing?

hayesbny · Joined: 06 May 2007 Posts: 1 1.37 Dollars($)

We applied for two loans to buy a new house. One was a conforming 15 yr loan and the other a home equity. We did this to cover the whole cost of the new house incase we didn't sell our old house. We did get a buyer and can close both houses the same day.

Our lender says that we have to take the line of credit, but we can pay it off the next day. Is this correct? That means we have to pay mortgage tax, etc.

He says that we can't get a lower rate on the conforming loan unless it is coupled with the line of credit. Is that right? Their website shows a lower rate.

We paid the application fee and are willing to give it up. If we stop working with this lender now and start over with someone else, is that okay? We didn't sign anything yet. It's all been verbal over the phone. Will it affect our credit rating in any way?

kenstampe · Posted: Sun May 06, 2007 8:12 pm Post subject:

There's a lot of questions in your post, so forgive me if I miss one.

I can't think of a single reason why you would have to take out the line of credit. As long as you own the home you are selling, and as long as it is closing escrow (funding) the same day or before your purchase, then the lender would allow you to use those funds for down-payment on your purchase.

While you could take out the second loan and pay it off the next day, why bother? I agree with you, it seems like added expense for now reason. Most of the time the lender doesn't get paid if a loan pays off that quickly so I'm not even sure who would benefit from you doing this.

The lower rate being given BECAUSE of the line of credit also sounds incorrect. Essentially, by taking out the second, your are borrowing a higher percentage of the sales price. Conventional rates go down if you are putting 10% down payment. Your rate should be lower if you DON'T take out the second.

I think you really owe it to yourself to talk to another lender at this point. Depending on your state, you may be entitled to a refund of your application fees but it seems like this story is just too screwy for you to take it on faith with this company.

good luck.

Caron

Hi Hayesbny,

Welcome to our forums.

Conforming loan with a lower rate only when combined with home equity line of credit - I haven't heard of this before. Seems odd. And, buying a house with two loans - one with a 15 year loan and the other with a home equity line of credit may be financially difficult for you to manage. It does not make sense to take a line of credit and pay it off in a day.

I think you should shop around with some more lenders. And then compare the costs and the payments before you decide. There's nothing called mortgage tax - it's actually the annual property tax payments which you deposit into an account set up by the lender for escrow collection.

Now, even if you have applied with the lender, it will not affect your credit-rating. But I am concerned over the fact as to whether the current lender will let you take back your application. You need to talk to the lender about your decision to stop working with him.

Good luck to you Smile

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