Delayed escrow benefits buyers during title transfer

Mortgage advisor: Jim Valler, Finance of America Mortgage.

Property type: Singlefamily residence in Richmond with Accessory Dwelling Unit.

Purchase price: $970,000.

Loan amount: $776,000.

Loan type: 30year fixed.

Rate: 3% with no points.

Backstory: My clients owned a home in El Sobrante and wanted to purchase a home in Richmond that not only met their new housing needs but also had an Accessory Dwelling Unit, adding potential for income or accommodating visiting guests.

To accomplish this they would have to purchase the new home prior to selling their current home.

It is very difficult for most people to qualify for this situation, either because their equity is locked up in their current residence or their debt ratio is too high.

Debt ratio is calculated by taking the total housing payment for both properties, plus any other debt payments on the credit report, and dividing this figure by the buyer’s gross income.

Fortunately my clients debt ratio was 49%, barely under the max allowed by Fannie Mae underwriting.

Because they were able to put down 20%, and had excellent credit scores, this scenario was approved by Fannie Mae’s automated underwriting system

Just when everything seemed to be moving along successfully it was discovered that there was a property title issue that required resolution in court, potentially delaying close for two to three months. My clients were getting cold feet about proceeding with the property purchase because of the uncertain schedule for taking occupancy and potential increases in interest rates during the delay.

To keep the deal together, the buyer’s agent, Felipe Acobes with Better Homes and Garden Reliance Partners in Oakland, negotiated a $10,000 reduction in the purchase price plus a $10,000 seller credit to cover the potential cost of “buying down” the interest rate to the level in effect at the outset of the escrow period.

Acobes also negotiated an occupancy agreement that enabled the buyers to move into the property and temporarily rent it from the seller until the title transfer issue was resolved.

As it turned out, the title issue was resolved in 30 days and the purchase closed soon thereafter.

Contrary to the buyer’s fears, rates actually declined during this time period so that their final interest rate was .25% lower than it would have been had escrow closed when originally intended.

My clients were therefore able to use the seller credit for other closing costs.

Soon after closing the buyers sold their El Sobrante home, using the sale proceeds to restore their savings.