We have plenty of tricks up our sleeve that we can use to help buyers qualify for a home loan:
But at the end of the day, the challenge isn’t simply qualifying for a loan, it is also finding a seller who will accept the offer. One significant step that buyers can take to get a leg up on the competition is to sort out the mortgage financing ahead of time, obtain pre-approval from the lender, and then waive the financing contingency. By doing so, the buyer would be guaranteeing that they are eligible and able to buy the home, and that they wouldn’t back out of the contract due to any financing-related issue.
“Contingencies” are part of any real estate contract, and make the completion of the purchase agreement contingent on meeting certain conditions. If these conditions are not met by one of the parties involved, the other party is able to legally back out of the contract.
Take, for example, the inspection contingency. The inspection contingency – also called due diligence contingency – protects the buyer by giving him/her a certain amount of time to inspect the property and ensure that everything is in working order. If anything comes up amiss, the buyer can negotiate repairs or concessions with the seller, or even back out of the contract in some cases.
Other contingencies include things like the appraisal contingency, the house sale contingency, and the kick-out contingency. The contingencies – and their structure – may vary based on the contract. Click here to read more about them.
Rather than pay all cash, most buyers must take out a loan to obtain financing for a home purchase.
The financing contingency gives buyers a certain amount of time – 17 days, say – to obtain financing for the purchase. The buyer then has 17 days to back out of the contract without penalty and recoup their “earnest money” escrow deposit.*
After 17 days, the buyer would be obligated to purchase the home. Should the buyer still back out, he / she would forfeit his / her escrow deposit, and could be held liable for any financial hardships passed along to the seller (such as the seller obtaining a lower sales price with a subsequent offer).
*“Earnest money” is a small payment – usually 1% to 3% of purchase price – put into an escrow account after the buyer signs a purchase contract. It is used to signal serious intent for the home purchase.
Central Coast Lending allows buyers to obtain pre-approval for any home purchase loan.
Pre-approval is different than pre-qualification. The pre-qualification is an initial, surface look at the borrower’s finances to determine the general price range that the borrower can afford.
The pre-approval is the end product of the loan application process, after the borrower has submitted all proof of income, assets, liabilities, and received “underwriting” approval from the lender.
At this point, the lender has granted the borrower “pre-approval” for a certain loan amount, say $350,000. This process can occur absent of identifying a specific property to purchase.
Pre-approved buyers can then waive the “financing contingency” portion of the process and make their offer more competitive. And because their financing is already preapproved, buyers may confidently make offers with shorter close of escrow timeframes, say 17 or 21 days versus the typical 30 or 45 days.
The seller runs a risk by accepting a contract with financing contingencies. Consider:
Seller is choosing between twin $350,000 offers. The seller choses Buyer A. After 14 days, Buyer A hits a snag in the loan process and backs out of the agreement. The seller would like to approach the Buyer B, but in the 14 day wait, Buyer B moved on to another home.
Seller tries to obtain another $350,000 offer, but can find only buyers willing to offer $335,000. The seller has lost $15,000!
By waiving financing contingencies, the borrower signals immediate intent to make the purchase, which helps minimize the risk taken on by the seller. In doing so, the buyer can gain a leg up against similar offers… even when not offering more money down.
Creating an account is fast, easy, secure and FREE! Your account enables you to easily modify your loan application and view the status of your loan anytime day or night.
When you register for a Loan Center account, you can submit a loan application online and the sensitive information that you provide will be transmitted securely.
Kick your feet up while we crunch the numbers. Pre-approval can be done very quickly if you provide a complete and accurate loan application and supporting documentation.
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