A contingency in a real estate purchase contract is a way in which a buyer (or seller) could get out of the contract within a set period of time for a particular reason. For example, if there is a buyer contingency that the home must appraise to purchase price, but the appraisal comes in low, the buyer can get out of the agreement because of this – as long as the buyer has not already signed for the removal of that contingency. A seller might have a contingency that the sale of the home is contingent upon the seller finding a replacement property.
Most home buyers and sellers in Silicon Valley understand that ordinarily, home purchases are contingent upon or "subject to" their approval of the property’s condition and upon getting the desired loan. Under the broad umbrella of property condition and financing, though, there are other relevant or supporting issues, and consumers may not be aware of them.
For instance, with a loan or finance contingency, there are several key steps to go through in order to be assured that the lending institution will extend the loan as planned.
A pre-approval means that the buyer has turned in bank statements, pay stubs, copies of recent income tax forms, debt information, and so on – and all of it has been submitted to a lender (not just the person taking the loan application, who has conditionally approved it). With that approval, the lender then should require only a ratified purchase agreement, a preliminary title report, and a satisfactory appraisal. Actually, though, there’s a little more to it than that. What other issues could there be?
- if loan rates change substantially and the buyer has not "locked" the loan, it may not be guaranteed
- if there’s a delay in the close of escrow (rain forcing a delay in fumigating the property, for instance) and the buyer’s loan lock rate expires, the lender may not grant the loan
- many lenders require an "outside appraisal review" and if it doesn’t get through that step unscathed, the buyer may not get the loan
- natural disasters such as fire or earthquake can cause lenders to pull the loan until the property is reinspected and/or reappraised
So buyers and sellers will want a little more information than simply "the buyer is preapproved". Here’s what they need to know.
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Jun.27.2008 [
Filed under: Silicon Valley News ]
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