In Brief (TL;DR)
If we already know we need a mortgage to purchase a specific property, it’s always wise to make our purchase offer contingent on its actual approval.
It’s a good idea to obtain a mortgage pre-approval document from our bank, which certifies a general financial feasibility for the mortgage we intend to apply for.
The mortgage contingency on the purchase offer also serves as an additional guarantee to the seller of the buyer’s genuine intention to commit to purchasing the property for sale.
The devil is in the details. 👇 Keep reading to discover the critical steps and practical tips to avoid mistakes.
On the path to buying your dream home, there are many aspects to consider carefully. Very often, we find ourselves in a financial situation where we don’t have the full amount needed to purchase the property and are therefore forced to make a purchase offer contingent on a mortgage, to be requested from our trusted bank or credit institution. In addition to evaluating the dynamics related to a real estate purchase offer and obtaining a mortgage, it’s important to consider other factors. For example, it’s crucial to accurately analyze your personal financial situation and evaluate the best payment options. Furthermore, it’s advisable to consult a real estate expert for advice and guidance on choosing the most suitable home for your needs. This guide has been created specifically to provide clear and detailed support on how to handle a purchase offer with a contingency on the granting of a mortgage loan, taking all these important factors into account. Great! Let’s not delay any further and discover the basic points for drafting a purchase offer contingent on a mortgage!
How to Make a Purchase Offer Between Private Parties Contingent on Mortgage Approval
When purchasing a property, people may want to submit a purchase offer conditioned on obtaining the necessary financing.
This means that the purchase will only be finalized if the bank grants the mortgage to the potential buyer who is ready to purchase.
In fact, this way, the buyer can protect their financial interests and ensure they have the opportunity to obtain financing before fully committing to the property purchase.
This contingency clause offers greater security and flexibility in the real estate transaction process, allowing both the seller and the buyer to carefully evaluate available financing options and make an informed decision.
Key Steps
- Drafting the Offer: Clearly state that the offer is contingent on mortgage approval, specifying the terms and conditions.
- Mortgage Amount: It is essential to reference the precise amount you intend to finance.
- Timeframe: Define a period within which to await mortgage approval.
How to Make a Purchase Offer Contingent on Mortgage Approval Through a Real Estate Agency
Working with a specialized real estate agency can significantly simplify the process of including a mortgage contingency in a home purchase offer.
Thanks to their experience and knowledge of the real estate market, real estate agencies can provide both the owner and the buyer with professional advice, assistance in property valuation, and comprehensive support throughout all phases of the transaction.
With the help of a trusted real estate agency, you can achieve a smoother and more secure real estate transaction.
Points to Consider
- Commission: Clarify with the agency the terms for paying the commission if the mortgage is not obtained.
- Agency’s Role: It can act as an intermediary in the communication between the bank and the buyer.
How to Make a Real Estate Purchase Offer Contingent on a Mortgage
In the purchase offer, it is important to specify that the offer is subject to a condition precedent, namely the approval of the mortgage by the bank.
This condition ensures that the commitment to purchase is subject to the positive outcome of the credit assessment by the financial institution.
This precaution provides greater protection for both parties involved in the real estate transaction.
Details to Include
- Financing Percentage: State what percentage of the purchase price is to be covered by the mortgage.
- Mortgage Term: Include the desired length of the loan.
What Happens If You Don’t Get the Mortgage
An offer contingent on mortgage approval protects the buyer if the bank denies the financing, offering additional security in the event of an unexpected denial of the loan application by the banking institution.
This agreement provides a safeguard for the buyer, allowing them to proceed with the real estate transaction with peace of mind.
Implications
- Refund: The down payment made by the buyer must be refunded.
- Cancellation of the Agreement: with no penalty for the buyer if the mortgage is not secured.
Requesting a Mortgage Pre-Approval Document from the Bank
Before signing any purchase offer contingent on a mortgage, it is advisable to request a non-binding document from the bank that attests to the feasibility of the mortgage.
This document, also known as a mortgage pre-approval, provides the buyer with a preliminary assessment of their ability to obtain a mortgage and the terms that might be offered.
Requesting a mortgage pre-approval allows you to better assess your financial situation and make an informed decision before making a binding commitment.
Be sure to consult a financial advisor or an industry expert for an accurate assessment of your mortgage options.
Advantages
- Greater Credibility: It demonstrates seriousness and reliability to the seller.
- Advance Knowledge: You get an idea of the chances of loan approval.
Conclusion
Including a mortgage contingency in a purchase offer may seem complex and require some preparation. However, by properly following all the steps of the home purchase offer process, it is possible to face this challenge with confidence.
It is essential to stay well-informed about all available options and, if necessary, use the services of experienced real estate professionals.
With the right support and good planning, you can proceed with confidence in purchasing a real estate property with the help of a mortgage loan.
Frequently Asked Questions
The handling of the commission varies depending on the agency and the signed contract. It is important to discuss this in advance.
Yes, every aspect of the contingency can be customized to better meet the buyer’s needs.
Waiting times can vary. Generally, banks provide a response within 30-60 days.
Did you find this article helpful? Is there another topic you'd like to see me cover?
Write it in the comments below! I take inspiration directly from your suggestions.