When can I terminate a contract and get my earnest money back?
When can I terminate a contract and get my earnest money back? Residential real estate contracts in Spring Texas provide three main opportunities for a buyer to terminate his contract and be refunded his earnest money. The three opportunities are during the option period, during financing approval, and during property approval.
Each of the three main termination opportunities are outlined below:
During the option period: The option period is when you have the unrestricted right to terminate the contract. You do not need a reason to terminate the contract. Terminate during the option period and your earnest money is refunded. Read: What’s the difference between earnest money and the option fee?
During financing approval: The third party financing addendum specifies the number of days you have to obtain buyer approval. Buyer approval is obtained when the lender determines you have satisfied all of his requirements related to your assets, income, and credit history. Inform the seller during the financing approval time frame you are unable to secure financing and the contract will terminate. You will get your earnest money back. When you inform the seller of your inability to secure financing outside the defined time frame your earnest money is NOT refunded.
During property approval: When the property does not satisfy the lenders underwriting requirements you can terminate the contract and get your earnest money back. The lenders underwriting requirements for property approval include insurability, lender required repairs, and appraisal. The main reason a property does not meet the lenders underwriting requirements is due to a low appraisal. When the appraised value of the property does not meet or exceed the agreed upon sales price you have the right to terminate the contract. For FHA and VA loans the right to terminate due to a low appraisal is stated in the Third Party Financing Addendum. Conventional loans require the use of an additional contract addendum to terminate due to a low appraisal.
The three main time frames during which you can terminate a contract and get your earnest money back are during the option period, during financing approval, and during property approval. During the option period is the only time cash buyers can terminate a contract and have their earnest money refunded.