Is Changing Financing After Signing a Purchase Agreement a Breach of Contract?

When a buyer decides to change their financing after signing a purchase agreement, concerns often arise about whether this constitutes a breach of contract. This article explores the legal nuances and common practices in real estate transactions regarding financing changes. It aims to provide clarity and help both buyers and sellers understand their rights and responsibilities.

Real Estate and Financing Details in Purchase Agreements

In real estate transactions, it is common for the purchase agreement to include details of the financing. However, these details should generally be kept to a minimum. A typical agreement might state a maximum interest rate, points, and other parameters that the purchaser is willing to pay. This information is often included to provide clarity and protect the buyer. However, it is important to understand that these details do not necessarily restrict the buyer's choice of lender or financing options.

It is worth noting that unless the financing is explicitly stated as an integral part of the purchase contract and a critical factor in the agreement, the buyer should generally be free to negotiate with various lenders or banks for better terms. In fact, securing a better deal with another lender might be seen as a consumer’s right and not a breach of contract.

Common Scenarios and Legal Considerations

Let’s consider a scenario where a buyer wants to change their financing after signing a purchase agreement. If the agreement explicitly states that the buyer must commit to a specific financing method or lender, changing this could potentially be seen as a breach of contract. However, most purchase agreements typically give the buyer the freedom to explore different financing options.

For instance:

If a buyer initially plans to secure financing through a bank or credit union but changes their mind and decides to use another lender, this is generally not a breach of contract, provided they still meet the terms of the purchase agreement. Changes in interest rates that do not exceed the agreed-upon maximum, or changes in loan amounts within reasonable parameters, are usually not a breach.

However, certain conditions might make a financing change a breach of contract:

If the buyer fails to apply for the financing as stated in the agreement, causing the sale to fall through, a breach may occur. Similarly, if the buyer changes their mind and announces an intention not to proceed with the purchase, this could also be considered a breach of contract.

Legal Precedents and Professional Guidance

While determining whether a financing change constitutes a breach of contract can often be nuanced, legal advice is always recommended. Buyers and sellers are advised to have their contracts reviewed and understood before proceeding with any transaction.

It’s important to understand that this article is provided for informational purposes only. No legal advice should be inferred from it. Each situation can be unique, and the outcomes can vary based on local laws and specific circumstances.

For detailed legal guidance, it is advisable to consult with a qualified attorney who specializes in real estate law and can provide tailored advice based on your particular situation. This ensures that both parties are fully aware of their legal obligations and can make informed decisions to protect their interests.