Contract Timeline for Credit & Property Approval
January 10th, 2011
I really like the new contracts that were effective on 11-29-2010, with regard to clarifying the financing approval steps in a transaction. There are two ingredients to the financing situation on a transaction; the credit approval of the buyer and the lenders property approval.
The Third Party Financing Addendum for Credit Approval gives a period of time, agreed upon by Seller and Buyer, for the Buyer to obtain Credit Approval. If the Buyer does or cannot obtain credit approval within that time period, the Buyer must notify the Seller in writing and then is due a return of the earnest money. If the Buyer lets the time pass without notifying the Seller that credit approval has not been obtained, then the earnest money is due to the Seller.
The Property Approval is done in the Underwriting Department of the lender and does not take place until shortly before closing. The property approval (underwriting) consists of but is not limited to appraisal, insurability,approval of the survey and lender required repairs. Appraisal issues are tough to overcome, as most loans are based on loan to value. Insurability is a function of the condition of the property and the claims history of both the property and the buyer. Lender repairs can become an issue if the property is not in good to excellent condition when the appraiser visits the property. If a compromise cannot be reached on an appraisal or lender repairs, the loan will not be granted. Lately we have seen the financial soundness of the homeowner's association and the condition of the amenities in the subdivision being an issue as well as if there are any anticipated assessments due to be levied on the homeowners. If the property approval is not granted, the Buyer is entitled to the return of the earnest money.
Whew! what a process. It's a good thing you and your Realtor are prepared as you start the process to navigate through your transaction.