Interest Rates and Mortgage Contingency Clauses -- What are YOU doing?

Services for Real Estate Pros

We've all read enough by now about how you need a 720 credit score and 20% down to qualify for what people commonly refer to as "the going rate" or "the rate I saw on Bankrate" for a 30-year fixed mortgage.  I've seen a few different approaches to the way people fill in the blanks for the "interest rate not to exceed X% over Y years" portion of the mortgage contingency clause; now that a pre-approval letter with a statement that the borrower's application received an "Approve/Eligible" underwriting recommendation no longer results in "the going rate," how do you approach the mortgage contingency? 

A couple of things to get the discussion going:  What does a buyer's "interest rate tolerance" tell you about his/her/their motivation level?  When representing a seller, has the interest rate ceiling stated in an offer caused you to question a buyer's bona fides?  When representing a buyer, what kind of "expectation setting" discussions do you have with your client regarding what figure to set as the interest rate ceiling?  Do you ever consult with "your trusted mortgage partner" about the mortgage contingency clause? Have the changes in the mortgage market caused you to change your approach to the mortgage contingency clause?

Share some tips, advice and insight with your colleagues and let us know what you think.



Comments (5)

Barbara Carter
C21 Alliance Realty Group - New Paltz, NY
Serving Your Real Estate Needs in the Hudson Valle

The contingency clause has become very complicated. I rely heavily on a trusted lender and go over the wording of the contingency prior to submitting an offer. The last thing I want are unexpected surprises down the road.

May 16, 2008 09:19 PM
Russ Ravary ~ Metro Detroit Realtor call (248) 310-6239
Real Estate One - Commerce, MI
Michigan homes for sale ~

If the rates rise so high that the borrower doesn't qualify then our Mortgage clause kicks in.  But just because the borrower doesn't want to pay 6.5 instead of 6.25% doesn't get them out of a contract.  Need to lock the rate in as soon as possible.

May 16, 2008 10:22 PM
Gary McAdams
GMAC Schwartz Property Sales - Key West, FL

I just received an offer on a property I have listed contingent on receiving a mortgage at "MKT" rate.  Who is to define Market Rate?  I advised my seller to turn that down immediately.

May 16, 2008 10:51 PM
Jerry LaRose - Orlando Fl Real Estate Expert
Orlando Realty Partners, Orlando Short Sale Specialists - Orlando, FL
Orlando Fl Real Estate Expert, Short Sale Expert

Great Post, Thanks for the information. Keep up the great blogs. Very interesting. I enjoyed reading your blog.

May 16, 2008 11:37 PM
Juan Boldizsar
Belleville, IL

Indeed, Barbara.  I lend in several states and have seen contingency clauses ranging in length from a few sentences to half of a page. Do you use your trusted lender on just the buy side deals you have or do you give him/her a call to for a look-see when you are on the sell side as well?

Russ, is that a board form contract?  I'd be interested in reading the language to see how that works.

I'm with ya, Gary -- looks like the buyer you described may have wanted a free option on your seller's property. 

Thank you, Jerry.  I appreciate the complement.  There's definitely more to come from my keyboard!

And thank you all for sharing your insights.


May 17, 2008 01:31 AM