Some homebuyers are losing deposits of $10,000, $20,000 or more due to high mortgage rates: NPR

Paulo Echeverry and Dahianara Lopez Zapata at their food truck in Kissimmee, Fla.

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Paulo Echeverry and Dahianara Lopez Zapata at their food truck in Kissimmee, Fla.

Michelle Bruzzese for NPR

Dahianara Lopez and her husband Paulo Echeverry run a food truck outside of Orlando. “We work together every day,” she says as she cooks Colombian sausages on the truck’s large stainless steel grill.

They say that by working long hours over several years, they have saved a down payment on a house.

“We think renting is like a waste of money, you know?” says Lopez. “So we want to buy a house to have something that we can say is mine.”

Late last year, they signed a deal to buy a new home before it was built for about $500,000 and posted a $25,000 deposit.

But since then, mortgage rates have seen the biggest rise in 40 years, from 3% to around 7%. Pandemic delays have meant many new homes are taking a year or more to build. Now it is much harder for thousands of people like Echeverry and Lopez to be able to afford the new homes they have agreed to build. In her case, the higher rates would increase her mortgage payment by about $1,100 per month.

Paulo Echeverry and Dahianara Lopez Zapata, on the lot where the new house they wanted to buy is under construction and almost ready.

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The couple were terrified that they would no longer qualify for a mortgage and lose that large deposit.

“The seller always tells us that if we don’t buy the house, we’ll lose the down payment,” Echeverry said when the couple first spoke to NPR. “Even the area sales manager…she also told me we’re going to lose our money.”

Some people have already lost their money. Karen Jensen works as a school nurse at a primary school in Tigard, Ore. She and her husband wanted a bigger house for themselves and their three children.

“We put a little over $15,000 in down payment,” she says.

But after interest rates went so much higher, they decided to back out of the purchase, and she says the builder kept her deposit. At first she was sad but okay about it. You signed the contract and put the money down anyway.

Karen and Bradley Jensen at their current home in Tigard, Ore.

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Karen Jensen

But then she saw the company put the house back up for sale for $90,000 more than she would have paid for it. Prices in the area had increased during construction. And she says it was quickly agreed and listed as sold on the builders website.

“It felt really gross to see that,” says Jensen. “So not only are you getting our earned money, our 15 grand, and they’re generally going to get more money at the end of the day.”

Home builders don’t seem keen to talk about buyers losing their deposit money. The National Association of Home Builders declined an interview and the Florida Home Builders Association did not respond to requests for comment.

“Most builders will be very wary of returning a deposit out of sheer goodness of heart,” said Paul Schwinghammer, president of the Indiana Builders Association.

He says it’s important to recognize that these massive hikes in mortgage rates are hurting buyers and builders right now. That’s because so many shoppers get cold feet. An industry survey found buyer cancellation rates nationwide in October were three times higher than normal.

As such, Schwinghammer says builders must try to get buyers to honor the sales contracts they sign, since being stuck with many unsold homes is a big risk, especially for a smaller builder.

“If there’s a rumor on the street that Bob the Builder is giving everyone their money back, Bob’ll be out of business pretty quickly.”

But he thinks builders should make an exception in cases like Karen Jensen’s, where the builder can sell the house to someone else for a lot more money. “If the builder has benefited from the resale of this house, he should at least return the deposit to the customer,” says Schwinghammer. “It’s just an ethical decision on my part.”

Some builders are also making exceptions for people who may no longer even qualify for a mortgage with these higher interest rates.

Paulo Echeverry and Dahianara Lopez Zapatas neighborhood in St. Cloud, Florida.

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Jody Kahn of the John Burns Real Estate Consulting Group surveyed about 100 homebuilders on how they handle the serious cash deposits that buyers have to make. She says for clients who can no longer qualify for a loan, “the majority of builders are willing to issue a refund.” But not all builders.

“There were some builders who said they would just keep the deposit,” says Kahn. “Your contract allows it … some say we just keep it.”

Buyers often don’t have much recourse.

“Everything in these agreements is designed in the developer’s favor,” says Craig Rothburd, a Florida attorney who specializes in consumer protection cases. He says the buyers sign a contract that says they can lose their deposit.

However, he says it never hurts to ask a contractor for your down payment, especially when losing the down payment would be a real financial hardship.

Karen Jensen in Oregon has asked the contractor for her down payment but has not yet received a response. The company said in a statement to NPR that it would not be discussing a specific case, but said there are costs involved in selling a home to another buyer and that “any obvious windfall is not what it seems.” “.

Back in Orlando, Paulo Echeverry and Dahianara Lopez were worried about losing their $25,000 deposit.

Paulo Echeverry and Dahianara Lopez Zapata at the Que Parchef food truck in Kissimmee, Florida.

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“Buying a house… that was our dream,” Lopez said. “But it’s a complete nightmare.”

But after NPR contacted the home builder, a large public company called Dream Finders Homes, it said the couple would not lose their security deposit.

The company declined to be interviewed, but said in a statement that if a buyer defaults on a contract to purchase a home, “we have a general policy that … we give them 100 percent of that down payment on a future DFH home.” be credited.”

And the couple tells NPR that the company is now offering to spend about $10,000 to lower their interest rate. Some builders do this as a lower rate helps people buy the houses.

“That’s very good!” Echeverry said with obvious relief. “The company wants to work with us to close our house.”

He says this will bring their interest rate down from around 7% to just under 6%. Lopez says that will still be a stretch and at a higher rate than they anticipated when they agreed to the purchase. “But I’m also excited to get the house.”

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