In this series, I talk about the contingencies found in a typical real estate purchase and sale agreement. Today, I’ll be discussing the MORTGAGE contingency. It’s typically the third and usually final contingency date on the real estate sales contract time line.
A typical time period for receiving mortgage commitment is 4-6 weeks. This can vary depending on your loan type and assumes no complications. The idea is that the buyer has this reasonable time period to obtain a commitment from a lender for financing of the property.
If the buyer is unable to get a commitment in that time period they may:
1. Withdraw from the contract and get their deposit back.
2. Ask for an extension of time if they believe they will get the loan. The seller must agree.
Why wouldn't a buyer receive their mortgage commitment?
Several things can happen. They may not qualify due to some change in their situation. I've heard horror stories of an uneducated borrower using financing to purchase a new vehicle or furniture during this time period and making themselves ineligible for a loan because their debt to income ratio changed. Or, they may have lost a job, or some of their income is not able to be documented satisfactorily.
When you apply for a mortgage, you the borrower have to qualify in terms of credit rating, income to debt ratio and employment history. The HOME also has to qualify in the sense that it must appraise for the purchase amount (depending on loan type - if you have a conventional loan with a large down payment, you may be able to absorb a low appraisal) and it must meet a minimum standard in terms of condition, again depending on loan type.
Work with your loan representative to avoid common pitfalls, and it makes sense to check on even minor changes before making financial decisions before the closing.
Mortgage products can be very specific and each type has its own guidelines, so I suggest contacting a mortgage professional (let me know if you need a name) with additional questions. Usually these folks can suggest a couple of options after hearing the details of your situation and they work very quickly (and many times over the phone!) to let you know what you can afford. This makes your home shopping a lot more fun, I guarantee it!
Now that the buyer has received their mortgage commitment, what's next? I'll be talking about the final countdown to closing in my next post. If I can answer any questions, as always, please let me know. Maria