Residential Property Financing

1- Inclusion in Purchase Agreements: Financing contingencies should be explicitly included in the purchase agreement to ensure that the buyer’s interests are protected. It is advisable to work closely with your real estate agent and legal counsel to ensure that the contingency is properly drafted and meets your specific needs.

2- Contingency Period: The contingency period refers to the timeframe within which the buyer must secure financing. This period is typically negotiated between the buyer and seller and is outlined in the purchase agreement. It allows the buyer sufficient time to apply for a loan, obtain pre-approval, and complete any necessary due diligence related to the financing process.

3- Contingency Removal: Once the buyer successfully secures financing within the specified period, they must provide written confirmation to the seller, typically in the form of a contingency removal document. This document states that the financing contingency has been satisfied, and the buyer is committed to proceeding with the purchase.

4- Loan Approval: Obtaining loan approval is a critical step in satisfying the financing contingency. During this process, the lender reviews the buyer’s financial information, credit history, and the property itself to determine whether the loan will be granted. It’s important to promptly provide any requested documentation to the lender to avoid delays.

5- Appraisal Contingency: In addition to the financing contingency, buyers may also include an appraisal contingency in the purchase agreement. This contingency allows the buyer to back out of the transaction if the property does not appraise for the agreed-upon purchase price. If the appraisal comes in lower than the purchase price, the buyer can negotiate with the seller for a price reduction or terminate the agreement.

6- Good Faith Effort: Buyers are expected to make a good faith effort to secure financing within the contingency period. This includes promptly submitting loan applications, providing requested documentation, and working diligently with the lender to meet all requirements. Failing to make a good faith effort may jeopardize the buyer’s ability to invoke the financing contingency.

7- Adequate Financing: It’s important to note that financing contingencies are typically contingent upon the buyer obtaining “adequate financing.” This means that the terms and conditions of the loan, including interest rates, loan amount, and repayment terms, should be reasonable and acceptable to the buyer. If the buyer is unable to secure financing on favorable terms, they may choose to exercise the contingency and terminate the purchase agreement.

8- Consultation with Professionals: Navigating financing contingencies can be complex, and it’s advisable to seek guidance from professionals such as real estate agents, mortgage brokers, and legal counsel. These experts can provide valuable insights, review contractual language, and ensure that your rights as a buyer are fully protected.

By understanding the role and implications of financing contingencies in purchase agreements, buyers can make informed decisions and protect themselves from potential financial risks. Working with experienced professionals throughout the process is crucial to ensure that the contingencies are properly structured and aligned with your specific requirements.