When you put in an offer on a house, you enter into the anxious waiting game. This is a property that you have fallen in love with and want to make your home. Now, even though you may love this prospective home, there are many reasons why you want to have some contingencies in place for your contract. You must understand the available contingencies as your agent writes up an offer for you. You want to make sure the contract you enter has you covered in the unfortunate event you need to back out of the contract. One of these contingencies is the loan contingency.
What is a Loan Contingency?
A loan contingency is a clause that you want to include in a home sale agreement. This protects the buyer from losing their earnest deposit if their loan approval does not come in on time. As you begin your search to purchase a home you are most likely already pre-approved for a mortgage but to take out that loan, you go through a loan approval process with the underwriter as they verify all your information for that specific purchase.
Sometimes this process can be delayed and this is a big risk for potential buyers because if the contingency is not written out properly then you can lose out on hard-earned and saved money that is dedicated towards the purchase of a home. As you negotiate your purchase agreement you typically select a date where the loan contingency will be lifted and it is usually within a week of closing. If this agreed negotiation is not met in time, a seller has the right to cancel the contract and move forward looking for another buyer.
Loan contingencies protect buyers and sellers, however, there are times when buyers waive their loan contingency, especially in a hot market. Waiving loan contingencies allows other buyers to compete with cash buyers. Financing a loan can cause delays in the sale of a home which is why a lot of sellers prefer cash buyers in a hot market. If you are a buyer and chose to waive this contingency it is a big risk. You can lose your deposit if you are denied the mortgage application and this will affect your chances of purchasing another home if your cash reserves are depleted. This is a good strategy but you have to decide if the risk is worth it for you.
For more information on the home buying or selling process, work with an experienced agent who can put you in touch with a lender that will help you through the entire process. If you are looking to buy or sell a home in the Mesa, Arizona or surrounding areas, contact me, I would love to help you with the process.
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