Dissecting CA Loan Approval Contingency Period April 19, 2011
If you will be a buying a Short Sale or REO property you may be asked to shorten the loan approval contingency period. This is not a decision to be taken lightly and it needs to be done in concert with your agent and your lender. See the following pitfalls to be avoided along with recommendations for a smooth transaction as offered by Randall Pickerell. Randall Pickerell is a Senior Loan Officer with RPM Mortgage in Danville, CA with 25 years of experience as a loan officer and appraiser in the local market! 925-648-7700 office, 925-998-2226 mobile
Financing Contingencies Dissected
The loan contingency/financing contingency is the period of time that you have to gain full loan approval from the underwriter/lender on your purchase loan. In the current California residential purchase agreement REV 4/2010, the loan contingency appears in paragraph 3H subset two. It currently defaults to 17 days unless you check the box and write in a shorter or longer timeline. The reason why it defaults to 17 days is because that is the typical timeline most lenders will need to gain final approval. However, on short-sale listings and bank owned property, many banks (who are the very same lenders who say they need the additional time!) will ask for shorter contingency periods. Home buyers, in the current environment, fearing that they may miss a great deal on a property will most often agreed to this shorter time line. This adds a great deal of stress to the transaction. To be successful in the short contingency period, the borrower must provide a timely loan application and documentation to the loan officer. This then must be carefully reviewed by the loan officer to determine what the underwriter will require as final "loan conditions" of the approval. A seasoned, professional loan officer will be able to ascertain many if not all of the items the underwriter will require. THIS UPFRONT REIVEW IS CRITICAL TO YOUR SUCCESS! If the loan is brokered to an outside lender, it is more difficult to determine exactly what will be required. This is due to the varying requirements by different lenders, different loan products, and to different interpretations of the current disclosure requirements and lending laws that are currently in effect.
The timing of your offer can also affect the contingency. If you accept a 10 day loan contingency in an offer that is ratified by the seller on a Friday, that 10 day contingency just got reduced to six business days because there are two weekends during that time. The underwriters and support staff do not work weekends. That timeline could be further shortened by any holidays that might be contained in that period. What happens if your 10 day time is up and your loan is not approved yet?
You have to ask for an extension of your contingency time from the seller but:
- They are not required to grant your request - you may lose out on buying that house
- Sometimes the seller will use this perceived leverage to gain something else that they desire in the transaction
Due to these reasons it would be wise to avoid asking for an extension of contingency periods.
What are some of the most important steps that a buyer can do to ensure success?
One of the most important steps is for the borrower to review their credit report - preferably 60 days prior to making an offer. This gives the loan officer time to effect changes to the credit report that could save the borrower thousands of dollars.
- provide an accurate/complete loan application; some of the most common omissions are inaccurate dates of employment, residency, addresses for employer and residency history, inaccurate monthly income, lumping bonus commissions and other fluctuating income to base income levels (these should be separated), trying to hide or used borrowed funds for down payment or closing costs, not explaining the source of funds intended to be used for closing
- provide your income, asset, identity and other required documentation as soon as possible to your loan officer who should provide you with a comprehensive checklist
- make your decisions about what loan product and interest-rate you wish to obtain as soon as possible so loan disclosures can be issued quickly
- make sure to inform your loan officer of any extended business trips or absences you may be planning during your escrow - this is to be avoided if at all possible as there are many things for you to do during this shortened transaction time
- above all - be informed, do research and be responsive to your loan officers requests and proactive whenever possible
Due to the general public's perception that much of the recent mortgage meltdown was caused by lender's lax lending practices, there have been many new disclosure and other regulatory changes in the lending process. Be prepared, choose your team wisely and then provide your loan officer/real estate agent team with what they require and you will be successful!
Dissecting CA Loan Approval Contingency Period April 19, 2011
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