You did all you were supposed to do. You got your financials in order, completed an FHA loan application and have your preapproval letter in hand. Working with your real estate agent, you found the perfect property in the ideal neighborhood at a price you can afford. You’re ready to go, right? Well, maybe not so much. There are times when it’s okay to cancel your offer and still get your earnest money back.

Let’s take a common example when a contract should be cancelled—deferred maintenance. This is a general term that means there are some physical issues with the property that have been ignored and the lender wants them fixed. Once the appraisal was ordered and completed, there was a notation at the bottom of the report noting “deferred maintenance” then a description of the offending issue. Perhaps there are significant foundation issues or the roof is in a complete state of disrepair. Such conditions have to be fixed before a lender will approve the loan. Nothing short of repairing them can be done when FHA financing, or any other mortgage for that matter, is being used. With such problems, you cancel the contract and move on.

It’s also possible to withdraw an offer when the appraised value doesn’t come in as needed. FHA lenders use the lower of the sales price or the appraised value. If your sales contract shows a $200,000 price and the appraisal comes back at $190,000, something has to be done about the $10,000 spread. Not only will you have to come to the closing table with the $10,000 difference but also 3.5% of the new $190,000 value. Plus closing costs. You can ask the seller to lower the sales price to $190,000 but if the seller refuses, sales contracts in Texas provide you, the buyer, with an exit as well as your earnest money refund.

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