Loan Application

According to Real Estate Purchase Contract, one of the buyer's duties is to apply for a loan before loan application deadline:

What does it mean to apply for loan: following events should occur before the application deadline:

1. the application should be completed, signed and delivered to the leander
2. all loan application fees, if they apply, should be paid
3. Buyer should diligently work to obtain the Loan and provide any additional information which can be required.

Procedure if Loan Application is denied:

There are several scenarios, all of them depend of the calendar, in other words, did it happen before or after the loan denial deadline? /em>

Buyer receives written notice from the Lender that the Lender does not approve the loan ("A Notice of Loan Denial"), first of all, the Buyer should no later than 3 calendar days thereafter, provide a copy to the Seller.

Buyer or Seller may, within 3 calendar days after Seller's receipt of such notice, cancel this contract by providing written notice to the other party. It is the only clear reason for the Seller to cancel the agreement. There are other possible situations, but it is the only obvious one.

In the event of cancellation, what happens with deposit (Earnest Money)?

1. if the notice of loan denial was received by the Buyer no later than the loan denial deadlines referenced in deadline section, the deposit shall be returned to the Buyer. Please pay attention, if you are a seller, if the notice was received the the BUYER..., not seller...

2. If the notice was received after that date, the deposit shall be released to the seller, and seller agrees to accept it as seller's exlusive remedy, deposit as liquidated damages. Please pay attention, if you are a seller, if buyer last minutes decides to cancel the agreement, no matter what true reason is, if the buyer indicates that loan is denied (he may know people in loan indusry to ask him to write the loan denial notice), you will have a right only to keep a deposit because it is your exlusive remedy, in other words, you would not be able to sue.

3. The failure to cancel shall have no effect on thte Financing Condition set in previous section.

Tomorrow, I will review in more details what is DATE PLUS THREE DAYS WARNING NOTICE?

Mortgage Financing Contingency

If the buyer applies for mortgage, he will be contingent upon his/her financing. If you are a seller, it helps to check pre-approval and/or pre-qualification letter from the lender before offer accpetance, but buyer will still reserve the right to be contigent upon financing. (finacing clause)

First of all, what is the difference between Pre-Approval vs. Pre-Qualification?

Usually, pre-approval simply means interview with a lender, and lender's confirmation how much you can afford depends on information you provide to the bank.

Pre-qualification is based not only on interview, but also your credit check and few more paperwork you were required to bring: W2s, employment history, etc.

In other words, pre-aulification is more than pre-approval.

Second of all, while above mentioned financing clause is good at taking care of the most situations, if I represent buyer and if the byer is shopping around for loan, I suggest to add disclosure something like this " This ofer is subject to the Buyer's approval of the terms and conditions of any mortgage financing that the Buyer may apply for".

As a seller, you should clearify this statement and establis some time of boundaries. Not to have it as a deal breaker, it is better to buyers to know exactly what loan they are qualifing for before writting an offer.

Tomorrow, I will discuss what does it mean to apply for the loan, and what is procedure if the loan is denied?