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Sunday, January 21, 2018

What is a Mortgage Contingency Clause?

The real estate process is complicated. Both seasoned and first time buyers can often get bogged down in all of the red tape involved and important details can be overlooked. M&A Law Firm, P.C. will provide you with sound legal counsel to help make sure you successfully navigate the real estate buying and selling process.

What is a Mortgage Contingency?

A mortgage contingency clause, also referred to as a “loan contingency clause,” is a home purchase contract provision stating that if the prospective buyer is unable to get a mortgage within a certain period of time, he or she can cancel the purchase deal and receive his deposit back. The clause can be negotiated for how much time the buyer is granted to try and get the mortgage. The clause can also refer to certain mortgage terms the buyer wants to obtain and, if he or she is not able to get a mortgage on those terms, then he or she can walk away from the real estate transaction. Mortgage terms that would be important would include the interest rate. While the seller may not care about the mortgage terms or mortgage interest rate for the buyer, this will be a big deal to the buyer.

The mortgage contingency clause makes the purchase of the property contingent on the buyer’s ability to secure a mortgage. This means that the buyer needs to be able to obtain a firm commitment from the lender by a certain date. If unable to do so, the buyer or an agent of the buyer may request to extend the contingency. Extension requests are common in real estate transactions and sometimes multiple extension requests are granted to help ensure a purchase successfully goes through. If the seller does not approve the extension, the buyer still has the option to walk away from the purchase and have all earnest money refunded.

Buyers must be aware that a firm commitment from the lender is needed. It is a common misconception that pre-approval will suffice. Full, unconditional approval requires around 30 days. Pre-approval is only a matter of the mortgage lender taking a look at your income and credit score and approximating that you may qualify for the mortgage. A pre-approval letter is not legally binding and the buyer should always request a commitment letter from the lender.
Obtaining full and unconditional mortgage approval will require:

  • Property appraisal
  • Credit check
  • Verifying buyer’s accounts
  • Submitting the loan to underwriting
  • Satisfying all conditions from underwriting

Sellers may get increasingly anxious or frustrating with requests to extend the mortgage contingency. It can easily cause worry that the buyer will be unable to secure a mortgage and all of this time will be wasted on a hopeless transaction. Sellers, be patient, to a certain extent. The mortgage process takes time. It is often worth waiting a little longer. Especially considering you will have to return all of the buyer’s earnest money if the deal ends during the mortgage contingency phase.

Protecting Your Best Interests in All Real Estate Transactions.

Real estate purchases have substantial impacts on your life and finances that can be both immediate and lasting. Trust M&A Law Firm, P.C. to protect your best interests in these major deals. Proudly serving Cook County and Skokie, Illinois, M&A Law Firm, P.C. will provide trusted legal counsel in all of your real estate dealings.


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