In this post, I take a closer look at what you as a Buyer can expect when you start to negotiate the Real Estate Contract terms with the Seller’s side.
The Mortgage Contingency Provision
When buying a new piece of real estate, it’s easy to get caught up in the excitement of such a purchase and overlook certain factors that may not seem so important at the time.
Unfortunately, I have seen this happen again and again with different clients. The result is that the sales contract neglects to fairly represent you as the buyer in key areas.
To avoid that scenario, you need to be aware of a variety of aspects in your contract before signing on the dotted line. One critical area centers on the mortgage contingency provision. In basic terms, this section of the contract should be consistent with the current interest rates for mortgages and permit at least forty-five days to get a home loan.
Some contracts are overly optimistic and only allow for a thirty-day window to obtain the mortgage. That can be a problem. Although the seller obviously wants to wrap up the deal as soon as possible, thirty days is not always enough time to satisfy all of the requirements that the mortgage broker will need to secure an approval of your loan application by the bank. So make sure you specify forty-five days to attain a loan in the contract. If you are able to get one sooner, that’s fantastic. But the forty-five day time span is a much more realistic expectation.
Similarly, when filling in the blanks for the proposed interest rate or loan charges, choose conservative figures. For example, if interest rates for 30 year fixed mortgage loans are at 4.0 percent, insert “4.0 percent” rather than “market rate” or “4.5 percent.” In this way you preserve your right to reject a 4.5 percent loan (or higher) and to truthfully declare the mortgage contingency to be “unsatisfied.” Otherwise, the seller will compel you to close the sale because you received a loan approval at a rate that is within the “acceptable” terms specified in your contract (even though the rate is actually unacceptable to you as a borrower).
Next time, I will discuss the Real Estate Tax Proration Phase – the challenge of predicting the future.