Back out from purchase agreement

Hello Everyone,

A month ago I booked plan 2 in Helena (Eastwood). Base price was 726K and I intended to spend 24K on upgrades to make the final price to 750K. Initially I planned to put down 17% (10% from my savings and rest as a loan from 401K) and rest as mortgage loan. I knew my monthly budget (PMI, HOA, Mello Roos, 401K repayment and other monthly expenses) would be tight but with recent increase in mortgage rates I have a feeling that I committed very big mistake and would become real house poor if I commit to buy the new home. I already paid 25K in earnest deposit. I need your expert advice whether to hold on to my decision or let go of 25K and live in peace. My situation:

1. I have stable job in Irvine with annual gross of 150K.
2. I have a 1.5 year old daughter and my wife is currently at home but she is planning to start looking for a job early next year. With little hard work, she may be able to get a job in IT with annual gross at least 75-80K. I have to consider day care expenses if she starts working. Also we are planning for second child in future so my wife may take break from again in future.
3. We both have total of 270K in 401K (part of which I am planning to take as loan for down payment).
4. I have excellent credit score with no other debts except 325$ car lease.
5. Closing date is after April 15th next year.

I am now freaked out whether I would be able to pay all my bills (PMI, HOA, Mello Roos, 401K loan repayment, car lease, day care (if any), other monthly expenses) or have too much debt to deal with on monthly basis. Now I am wondering if I should let go of 25K earnest money or look for other options if I have to go with mortgage loan. Also please suggest if there is a way if I could get all or at least portion of my earnest amount.

I really appreciate all your expert suggestions on this.

Thanks,
Biku

biku456 said:

Hello Everyone,

A month ago I booked plan 2 in Helena (Eastwood). Base price was 726K and I intended to spend 24K on upgrades to make the final price to 750K. Initially I planned to put down 17% (10% from my savings and rest as a loan from 401K) and rest as mortgage loan. I knew my monthly budget (PMI, HOA, Mello Roos, 401K repayment and other monthly expenses) would be tight but with recent increase in mortgage rates I have a feeling that I committed very big mistake and would become real house poor if I commit to buy the new home. I already paid 25K in earnest deposit. I need your expert advice whether to hold on to my decision or let go of 25K and live in peace. My situation:

1. I have stable job in Irvine with annual gross of 150K.
2. I have a 1.5 year old daughter and my wife is currently at home but she is planning to start looking for a job early next year. With little hard work, she may be able to get a job in IT with annual gross at least 75-80K. I have to consider day care expenses if she starts working. Also we are planning for second child in future so my wife may take break from again in future.
3. We both have total of 270K in 401K (part of which I am planning to take as loan for down payment).
4. I have excellent credit score with no other debts except 325$ car lease.
5. Closing date is after April 15th next year.

I am now freaked out whether I would be able to pay all my bills (PMI, HOA, Mello Roos, 401K loan repayment, car lease, day care (if any), other monthly expenses) or have too much debt to deal with on monthly basis. Now I am wondering if I should let go of 25K earnest money or look for other options if I have to go with mortgage loan. Also please suggest if there is a way if I could get all or at least portion of my earnest amount.

I really appreciate all your expert suggestions on this.

Thanks,
Biku

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Welcome to TI.

Why not put at least down a deposit of 20%? (To get rid of PMI)
As you previously mentioned that you were going to put down 17%.

I definately would not walk away and give them $25k.

Thanks for your reply eyephone.
I could try getting remaining 3% as gift from friends and family but my worry is that I would end up spending too much every month on PMI, HOA, Mello Roos, 401K repayment, basic expenses and would be left with no money for anything else. I don't really want to commit to the loan assuming we will always have double income. But with single income this kind payment every month would be impossible. I know my mistake that I should have realized this before signing the purchase agreement but wanted to seek other opinions before I take any decision. Thanks again.

Buyers remorse is very common. Will be interesting to read a few comments from people who were in your position and what they did to overcome it.

Why not pay for a long term rate lock? At least if rates fall you'll get the "lower of" and if they rise? So what.

Re do your 2015 taxes with the assumption that you owned that year. Add about $17k for interest, and 8k for property taxes. Recalculate. If you're now getting a refund on your taxes versus renting, that can help alleviate the "house poor" fears.


My 1st home, a condo, closed in December, promptly losing 50 percent of its value within 6 months, and we were upside down for a decade. We couldn't have cared less. The home was nice. We had to live somewhere, and yet in retrospect, we might have bought another home and seen values rise faster than the home we purchased. Who could have guessed? The bottom line: no one knows the future. If you're buying so see stable property values or even see them go up, your purchase proposition is wrong from the get go. You should cancel immediately and rent. All risk factors cannot be mitigated against as the potential futures are infinite.  If you're willing to accept a measure of risk, continue forward.

My .02c

Corporate relocation. Builder should allow you to back out and give back your deposit.

Compressed-Village said:

Corporate relocation. Builder should allow you to back out and give back your deposit.

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Take your company's letterhead and create your own relocation package. If they ask for proof email them a PDF with a number from one of your friends

I stretched to buy my Irvine home 5 five years ago. I even put about 5% of the downpayment on credit cards (at 0% for 12-18 months) to avoid PMI. A few months after I bought it, I got laid off from my job and the new one I found quickly did not pay as well.

We had to tighten our belt for two years and really cut back on traveling, dining out, 401(k) contributions, clothing purchases, etc. until we paid off the credit cards. But in the end it was well worth it. Now our income has significantly increased, and our payments as a percentage of income are significantly less than when we purchased.

It's common to stretch to buy your first home. The key to owning instead of renting is that the cost of ownership stays relatively stable, while the cost of renting goes up with inflation.

paperboyNC said:

I stretched to buy my Irvine home 5 five years ago. I even put about 5% of the downpayment on credit cards (at 0% for 12-18 months) to avoid PMI. A few months after I bought it, I got laid off from my job and the new one I found quickly did not pay as well.

We had to tighten our belt for two years and really cut back on traveling, dining out, 401(k) contributions, clothing purchases, etc. until we paid off the credit cards. But in the end it was well worth it. Now our income has significantly increased, and our payments as a percentage of income are significantly less than when we purchased.

It's common to stretch to buy your first home. The key to owning instead of renting is that the cost of ownership stays relatively stable, while the cost of renting goes up with inflation.

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Timing is everything.  This same story would have likely turned out horrible if paperboy bought in 2007 and not 2012.  Although today is not like 2007, it is definitely not like 2012. 

@Biku:

Have you talked to the sales staff at Helena? For new homes, most sales offices will give you back your deposit if there hasn't been much done on the house (which for a month's time shouldn't be too much). And usually they will only deduct any design center work you did, so you should ask them first.

As for whether or not you should stretch, that's really up to you as only you know your finances best. Personally, from my experience, I've stretched every single time we purchased and in the end, it turned out to be a good decision.  There was even one time where we stretched and then sold because we didn't think we should continue stretching (this was during the 07-09 crash) but in hindsight we would have been okay had we not sold.

What will you do if you don't buy Helena? Will you purchase a less expensive home? Rent? That should also factor in.

irvinehomeowner said:

@Biku:

Have you talked to the sales staff at Helena? For new homes, most sales offices will give you back your deposit if there hasn't been much done on the house (which for a month's time shouldn't be too much). And usually they will only deduct any design center work you did, so you should ask them first.

As for whether or not you should stretch, that's really up to you as only you know your finances best. Personally, from my experience, I've stretched every single time we purchased and in the end, it turned out to be a good decision.  There was even one time where we stretched and then sold because we didn't think we should continue stretching (this was during the 07-09 crash) but in hindsight we would have been okay had we not sold.

What will you do if you don't buy Helena? Will you purchase a less expensive home? Rent? That should also factor in.

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Agree with this.  I know of a number of people who have put down deposits and were able to get their full deposit back in the Irvine new builds.

We stretched to buy our first home in 2005 and, at the time, the two of us combined made a little over $150K.  We put down 20% and the interest rate was 6.375% for 30-year fixed (with 800+ credit scores).  Granted, we had more in 401(k) and savings compared to your current status, but it was still a stretch on a monthly basis.  Bottom line is, you need to live somewhere.  You can choose to rent, buy something less expensive elsewhere, buy a smaller Irvine new build...you should think about where you want to be in the future.  Buying your first home is a huge decision and it's understandable you are stressed out by it.  Eastwood seems to be a good location, my vote would be to tough it out initially and build up equity.

irvinehomeowner said:

@Biku:

Have you talked to the sales staff at Helena? For new homes, most sales offices will give you back your deposit if there hasn't been much done on the house (which for a month's time shouldn't be too much). And usually they will only deduct any design center work you did, so you should ask them first.

As for whether or not you should stretch, that's really up to you as only you know your finances best. Personally, from my experience, I've stretched every single time we purchased and in the end, it turned out to be a good decision.  There was even one time where we stretched and then sold because we didn't think we should continue stretching (this was during the 07-09 crash) but in hindsight we would have been okay had we not sold.

What will you do if you don't buy Helena? Will you purchase a less expensive home? Rent? That should also factor in.

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From my experience in lending, the easiest way to back out is show you are "financially unable" to qualify for the loan.  You already mentioned you are at 17% downpayment and already stretching...might as well make some of those funds disappear saying "emergency funds" or you need to use it for something blah blah...get a letter from wells fargo (I assumed the preferred lending) saying this customer doesn't qualify and 100% you will get your deposit back.  Secondly, as long as they can find someone else to buy the property (usually before you pick your options) It's fairly easy to get your deposit back as well.  Back YEARS ago, I put a deposit down for Santa Maria in Stonegate, and same story, they held my deposit hostage until escrow closed.  Key is don't lose $25k whatever you do, visit them daily, get them annoyed at you, threaten them etc

GOod luck!  I've been a supporter of eastwood for a while on here.  Helena in particular I think is a winner, if resale is anything like cambria in stonegate, you'll be happy.  I actually put my name down on it for priority list before I bought in Baker ranch, just the timing didn't work out for my 1031 exchange and move in date.  Not a fan of the higher HOA for attached but 1.4% (lower melo roos) Northwood high as home school, and close proximity to zion market, I think it'll be a good purchase in the long run and might be worth stretching the budget for.  I prefer eastwood location vs cypress village east and Portola springs III as well. 

On a side note: I don't know your financial situation at all, but with your type of income, I'm surprised you are only at 17% downpayment.  Most of your problem stems from having not enough downpayment, if you had 25% downpayment, I doubt you would feel much stress at all.  You make ALOT more than me but your savings are not as much.  I would create a chart of all your bills and spending and see if there's anything that you can budget out (do you eat out often vs cooking? car payment? loans?)  With your type of income esp combined, you shouldn't need to feel like you are stretching at all, just my 2 cents

Don't stress out, stretched out a little financially and keep the Helena.  You won't regret it.

After Eastwood, there will be no new builds under $900k east of 133.

There're just not many neighborhood with walking distance to elementary school and zone to NW High at this price point.

I'm thinking you should be able to get your deposit back, inventory is still pretty low and that price point is doing decent (won't take them that long to find another buyer, unlike the $1.3m+ range... I think there's one in BP that's been sitting for over a year on market)

That being said, I'd still say keep it and tough it out, if you didn't, you'll rent?  Rental prices are pretty high now for condos, and apt have to deal with potentially no attached garage.

biku456 said:

Hello Everyone,

A month ago I booked plan 2 in Helena (Eastwood). Base price was 726K and I intended to spend 24K on upgrades to make the final price to 750K. Initially I planned to put down 17% (10% from my savings and rest as a loan from 401K) and rest as mortgage loan. I knew my monthly budget (PMI, HOA, Mello Roos, 401K repayment and other monthly expenses) would be tight but with recent increase in mortgage rates I have a feeling that I committed very big mistake and would become real house poor if I commit to buy the new home. I already paid 25K in earnest deposit. I need your expert advice whether to hold on to my decision or let go of 25K and live in peace. My situation:

1. I have stable job in Irvine with annual gross of 150K.
2. I have a 1.5 year old daughter and my wife is currently at home but she is planning to start looking for a job early next year. With little hard work, she may be able to get a job in IT with annual gross at least 75-80K. I have to consider day care expenses if she starts working. Also we are planning for second child in future so my wife may take break from again in future.
3. We both have total of 270K in 401K (part of which I am planning to take as loan for down payment).
4. I have excellent credit score with no other debts except 325$ car lease.
5. Closing date is after April 15th next year.

I am now freaked out whether I would be able to pay all my bills (PMI, HOA, Mello Roos, 401K loan repayment, car lease, day care (if any), other monthly expenses) or have too much debt to deal with on monthly basis. Now I am wondering if I should let go of 25K earnest money or look for other options if I have to go with mortgage loan. Also please suggest if there is a way if I could get all or at least portion of my earnest amount.

I really appreciate all your expert suggestions on this.

Thanks,
Biku

Click to expand...

Congratulations! I understand your consternation: I don't know anyone who's purchased a home and not had a significant amount of buyer's remorse. I speak for myself and many of my close friends.  Fortunately if has worked out well for all of us in the past. Don't feel unique in that regard, it is totally normal. I don't know any FCB (foreign cash buyers) personally but that is a whole different demographic which I will exclude in my analysis for obvious reasons .
3 quick thoughts/ideas:
1. Your 401k loan is a great idea. No tax implications or penalties since it is not considered an early withdrawal.  However I would also look at what you have left in your 401k as a cushion.  I am not suggesting that you liquidate your 401k after taking the loan, but rather you can 'break the glass' in case of emergency or shortfall.  It will be taxed (which is basically tantamount to taking it as regular income instead of pre-tax dollars) and there will be a 10% penalty.  However this should outweigh losing your deposit and might help you sleep better at night if you go through with the purchase. You can also treat a 529 college savings plan in this way, but only the gains are taxed and penalized not the principal since contributions are made with post-tax dollars.
2. Look at the delta instead of the overall monthly amount. I mean the difference between what you're paying now and/or would pay for housing (renting or owning) going forward.  Instead of being a scary big number if might be more manageable, and most of us can cut some things in other areas to make things more palatable.
3. Consider 5 or 7 year ARM with interest only options.  I have always been a 30 year fixed kind of guy myself, but these options can significantly improve your cash flow if you are not paying principal down and can only pay interest.  Then when the fixed period ends you can refi to another 5/7 year ARM with interest only.  This is better than rent because you can deduct mortgage interest and also have the potential to gain equity in your purchase over time.
Best of luck with your decision but I would go through with it. I have always hated renting!!!
BD

SoclosetoIrvine said:

irvinehomeowner said:

@Biku:

Have you talked to the sales staff at Helena? For new homes, most sales offices will give you back your deposit if there hasn't been much done on the house (which for a month's time shouldn't be too much). And usually they will only deduct any design center work you did, so you should ask them first.

As for whether or not you should stretch, that's really up to you as only you know your finances best. Personally, from my experience, I've stretched every single time we purchased and in the end, it turned out to be a good decision.  There was even one time where we stretched and then sold because we didn't think we should continue stretching (this was during the 07-09 crash) but in hindsight we would have been okay had we not sold.

What will you do if you don't buy Helena? Will you purchase a less expensive home? Rent? That should also factor in.

Click to expand...

From my experience in lending, the easiest way to back out is show you are "financially unable" to qualify for the loan.  You already mentioned you are at 17% downpayment and already stretching...might as well make some of those funds disappear saying "emergency funds" or you need to use it for something blah blah...get a letter from wells fargo (I assumed the preferred lending) saying this customer doesn't qualify and 100% you will get your deposit back.  Secondly, as long as they can find someone else to buy the property (usually before you pick your options) It's fairly easy to get your deposit back as well.  Back YEARS ago, I put a deposit down for Santa Maria in Stonegate, and same story, they held my deposit hostage until escrow closed.  Key is don't lose $25k whatever you do, visit them daily, get them annoyed at you, threaten them etc

GOod luck!  I've been a supporter of eastwood for a while on here.  Helena in particular I think is a winner, if resale is anything like cambria in stonegate, you'll be happy.  I actually put my name down on it for priority list before I bought in Baker ranch, just the timing didn't work out for my 1031 exchange and move in date.  Not a fan of the higher HOA for attached but 1.4% (lower melo roos) Northwood high as home school, and close proximity to zion market, I think it'll be a good purchase in the long run and might be worth stretching the budget for.  I prefer eastwood location vs cypress village east and Portola springs III as well. 

On a side note: I don't know your financial situation at all, but with your type of income, I'm surprised you are only at 17% downpayment.  Most of your problem stems from having not enough downpayment, if you had 25% downpayment, I doubt you would feel much stress at all.  You make ALOT more than me but your savings are not as much.  I would create a chart of all your bills and spending and see if there's anything that you can budget out (do you eat out often vs cooking? car payment? loans?)  With your type of income esp combined, you shouldn't need to feel like you are stretching at all, just my 2 cents

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@irvinehomeowner - I haven't talked to Helena sales office yet. I wanted to get expert opinion(s) before I take my next step. In case I want to back out, I don't know if I should give them a false relocation letter or just make funds disappear saying "emergency funds" or come with something similar.

It may sound rather strange that I put my name down for priority list in Crestline @ Baker Ranch but per my friends suggestions I enrolled at Helena and decided to go with it. I agree Helena is great location compared to CP east or PS III but my concern is that I reserved the home in the final phases when the prices have gone way up from the initial phases. I am not sure if the prices will go any up from here. I went to Helena 2 days ago and found all the homes in the new phases are available which is rather unusual given the demand Helana has experienced this entire year. Moreover, this plan 2 that I booked is attached on both sides (only garages though) so I am not sure if that's wise decision either. I don't mind stretching and cutting down on all my expenses but don't want end up losing all my savings if things go wrong. I understand no can see future!

Regarding your note on my savings: I am only at 17% downpayment because I invested my money overseas and cannot sell them now to get my money back for various family/personal reasons. I spend with in my limits and have always had control over my expenses.

All - For future, I am inclined to rent in Irvine and invest my savings in buying a home for 275-350K (in Dallas area) and put it on rent so whatever I pay towards the home I will get it back in rental income. That way the money I have are put to use. Let me know what you all think? 

biku456 said:

@irvinehomeowner - I haven't talked to Helena sales office yet. I wanted to get expert opinion(s) before I take my next step. In case I want to back out, I don't know if I should give them a false relocation letter or just make funds disappear saying "emergency funds" or come with something similar.

It may sound rather strange that I put my name down for priority list in Crestline @ Baker Ranch but per my friends suggestions I enrolled at Helena and decided to go with it. I agree Helena is great location compared to CP east or PS III but my concern is that I reserved the home in the final phases when the prices have gone way up from the initial phases. I am not sure if the prices will go any up from here. I went to Helena 2 days ago and found all the homes in the new phases are available which is rather unusual given the demand Helana has experienced this entire year. Moreover, this plan 2 that I booked is attached on both sides (only garages though) so I am not sure if that's wise decision either. I don't mind stretching and cutting down on all my expenses but don't want end up losing all my savings if things go wrong. I understand no can see future!

Regarding your note on my savings: I am only at 17% downpayment because I invested my money overseas and cannot sell them now to get my money back for various family/personal reasons. I spend with in my limits and have always had control over my expenses.

All - For future, I am inclined to rent in Irvine and invest my savings in buying a home for 275-350K (in Dallas area) and put it on rent so whatever I pay towards the home I will get it back in rental income. That way the money I have are put to use. Let me know what you all think? 

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Good post! I also have/had the same fears regarding Helena.  When I was preapproved I was in phase 4-5 or so.  The cost at the time was around $30-45k more than when I first saw Helena.  It was already very mid high 600's, and with option would've been in the low 700's...I was probably the last phase where it still would've been affordable and flippable.  I just looked online and saw it's now in the low 700s.  Low 700s attached townhome with the center attached may not be the best investment I agree but Irvine is a unicorn and probably would still hold value well.  Funny that you mentioned Baker ranch LOL we might be pretty similar.  Ended up buying the larger peake model even though I did like crestline and I have it rented out and it's doing really well so far mostly due to no MR I think.  I'm sure a dallas or the TI fav johns creek would be able to generate a few hundred in positive net cash flow a month that would be a much better "investment" while you rent in Irvine.

I would only buy in Helena if you felt it would be a forever home for you, and not as an investment.  Renting still is affordable compared to home owning in Irvine but the gap is closing in as rents have increased steadily.  I know esperanza is still below $2k for a 2 bed.  Good luck with everything!  Just take everyone's opinion with a grain of salt and make the best decision for your family. 

we made a mistake (or not) by not stretching ourselves when we bought in 2012, bottom of the housing market. If we did stretch ourselves then the appreciation would be much more today. I guess the silver lining is that we now have liquid assets to pay off the loan entirely while still leaving our 401k and most of the investment portfolio in tact. Any way if you have a stable job don't worry about stretching yourself or housing prices; it will always pay off in the long term. Irvine is a good place to raise a family so you can plant your root here.

.

The thing is if you want to stay in Irvine and get a 3-bedroom place, your rent is gonna be quite high. Just wondering, have you taken into account mortgage deduction? That will be a huge chunk of money you will be saving.

Also, what are you calculating as PMI? My experience is that the Wells Fargo PMI is lower was lower than what zillow and other online estimators were quoting. By about 30%.

The other thing to keep in mind is that you will be able to remove PMI within 3 years.

Helena seems to be selling fairly well. If you would be to back out, they will likely have no problem selling your house. However, I was initially freaking out as well when I bought Helena first phase but I feel a little better now that it has appreciated. Also condos without yards cost 700k in Irvine.

A S said:

irvinehomeowner said:

@Biku:

Have you talked to the sales staff at Helena? For new homes, most sales offices will give you back your deposit if there hasn't been much done on the house (which for a month's time shouldn't be too much). And usually they will only deduct any design center work you did, so you should ask them first.

As for whether or not you should stretch, that's really up to you as only you know your finances best. Personally, from my experience, I've stretched every single time we purchased and in the end, it turned out to be a good decision.  There was even one time where we stretched and then sold because we didn't think we should continue stretching (this was during the 07-09 crash) but in hindsight we would have been okay had we not sold.

What will you do if you don't buy Helena? Will you purchase a less expensive home? Rent? That should also factor in.

Click to expand...

Agree with this.  I know of a number of people who have put down deposits and were able to get their full deposit back in the Irvine new builds.

We stretched to buy our first home in 2005 and, at the time, the two of us combined made a little over $150K.  We put down 20% and the interest rate was 6.375% for 30-year fixed (with 800+ credit scores).  Granted, we had more in 401(k) and savings compared to your current status, but it was still a stretch on a monthly basis.  Bottom line is, you need to live somewhere.  You can choose to rent, buy something less expensive elsewhere, buy a smaller Irvine new build...you should think about where you want to be in the future.  Buying your first home is a huge decision and it's understandable you are stressed out by it.  Eastwood seems to be a good location, my vote would be to tough it out initially and build up equity.

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We are thinking to purchase new home in Eastwood and came across this post. We have similar concerns about backing out of purchase agreement if need arises and not able to get the deposit back. Does Irvine Pacific give back the initial deposit ? I understand we may not get back all the money paid for upgrades.