Legal Question in Real Estate Law in Maryland

Re: Switching of lender from Conventional to FHA during sale

Check the language of your contract. If you have a standard real estate contract, you may find a paragraph labeled "Alternate Financing". This allows the Buyer to change financing PROVIDED THAT IS DOES NOT INCREASE THE COSTS OF THE SELLER. FHA forbids certain fees being charged to the buyer. Many contracts contain a clause that provides that the seller will pay those costs which FHA forbids. If the contract provides for a conventional loan, however, any costs which would otherwise be imposed upon the seller must either be reimbursed by the buyer or absorbed by the lender (after all, the lender already has a copy of your contract showing that the loan is to be a conventional loan).

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Re: Switching of lender from Conventional to FHA during sale

If their new loan imposes material new obligations on you, you are not required to perform them if you did not agree to do so in the contract. If they were rejected for conventional financing, the standard financing contingency in the usual contract provides for them to notify you within a certain time period. If they don't, and don't have the financing to perform in accordance with the original contract, they may be in breach. You should consult a lawyer about this.