Financing Contingency On Real Estate Purchase Contracts

This Article Is About Financing Contingency On Real Estate Purchase Contracts 

The real estate market nationwide is hot.

• Homeowners who had upside down mortgages are not able to sell their homes
• They can now move on to purchase a different home, whether they are downsizing or moving up to a larger home
• There are more home buyers than sellers
• Many areas in the country are experiencing a lack of housing inventory
• It is a seller’s market
• Most homes in hot areas in the country have multiple offers
• Home buyers are experiencing multiple bids on homes they want to purchase
• There are many home buyers who have found themselves in a situation where they feel they must waive the financing contingency on their home purchase offer
• Some even consider waiving the home appraisal contingency as well to get the winning bid when putting in a home purchase offer
• The number of cash home buyers have steadily been increasing as well
• To compete with cash buyers and multiple offers, waiving financing contingencies is becoming more and more popular among home buyers

What Happens If Financing Contingency Is Removed?

A Home Buyer waiving their financing contingency removes the protection for the home buyer in case anything goes wrong with their pre-approval and the lender does not go ahead with the loan approval process.

• There are many types of contingencies a home buyer normally puts on the home purchase contract
• Examples of contingencies are the following:
  • such as home inspection contingency
  • appraisal contingency
  • most common, the financing contingency

Buying Home As Is Without Home Inspection To Get Winning Bid

If the home buyer is willing to purchase a home as is and willing to take the risk of doing work if there is something wrong, they can waive the home inspection contingency. If homeowners want the home bad enough and have reserves to do repairs then removing the home inspection contingency is not too big of a deal.

• As long as the home sits on a solid foundation and there are no structural issues or has major mechanical issues such as issues with plumbing, electrical systems, and HVAC systems, most other repairs can be affordable
• If the home buyer waives the home appraisal contingency, then they need to be ready to pony up the additional funds for the down payment that is above the appraised value of the home in order to close on the home loan
• This is also manageable
• It can be done as long as the home buyer wants the home bad enough and has the extra funds to put down for the down payment

Risks With Waiving Financing Contingency

However, if home buyers were waiving the financing contingency, the earnest money will be at risk in the event if the mortgage loan does not go through.

• Home sellers will find real estate offers with no financing contingencies much more attractive
• This because the home buyer is really putting a lot of skin in the game
• Home buyers who need to waive their financing contingency need to speak with their mortgage loan originator
• Make sure that their pre-approval is iron-clad solid
• Borrowers with borderline credit scores, credit issues, and high debt to income ratios should not make a real estate purchase offer with their financing contingency waived

TBD Property Underwriting Approvals

Those who are solidly pre-approved with high credit scores, solid verification of employment, with verification of rent and low payment shock, longevity on their jobs, perfect payment history, sufficient down payment, and lower debt to income ratios can consider waiving their financing contingencies. Gustan Cho Associates offers TBD PROPERTY UNDERWRITING APPROVALS which are pre-approvals that has been fully processed and underwritten and signed off by mortgage underwriters. TBD Property Approvals are loan commitments and the only condition missing is underwriting the subject property.

For more information on this article or other mortgage-related topics, please contact us at Gustan Cho Associates at 800-900-8569 or text us for faster response. Or email us at gcho@gustancho.com.