In binding contracts, deliberate language is important — and Offer to Purchase contracts are no different. If real estate agents and mortgage lenders worked together to review purchase contracts before the parties sign, a lot of problems could be avoided.
After 18 years at Accunet Mortgage, and having a front-row seat to thousands of purchase transactions, here’s what I wish every real estate agent would keep in mind regarding Offers to Purchase, counter offers, or amendments.
Learn more about how Accunet can help with buying a home in Wisconsin.
TIP #1 – Don’t write anything bad about the property unless you’ll fix it ASAP
We see this way too often: The buyer looking to negotiate house price after the inspection. More often than not, it’s something like, “Because of rotting wood on the front steps and cracked chimney liner, both of which are defects and safety hazards, Seller will pay $3,000 of Buyer’s closing costs.” There’s nothing inherently wrong with this — except, if the problems aren’t amended before closing, mortgage lenders won’t be able to give you the loan.
Mortgage lenders require defects and safety hazards to be repaired before closing. We will not lend on a property unless it’s in good, marketable condition at the time of closing.
How to get around this: Just shorten the language to something like, “Seller will pay $3,000 of Buyer’s closing costs and pre-paids. Upon acceptance of this amendment, home inspection contingency is waived.” This way, the repairs still get made, and you don’t have to worry about losing your loan agreement. That’s a slam dunk.
TIP #2 – Provide your lender with all amendments right away
Sometimes, we’ll get a surprise amendment a day or two before closing. It’s not a surprise to anyone else — but no one remembered to let us (their mortgage lender) know. Unfortunately, this can delay the homebuying process.
For example, a buyer might agree to a $3,000 closing cost credit, and forget to send it to their lender. This can affect how the home is appraised, and might even require the appraisal to be done again. Appraisers are busy! Requesting a 24-hour turnaround time is a huge ask, and not to mention stressful.
When in doubt, let your mortgage lender know. It’s always better to be safe than sorry.
Contact Accunet to get started on an efficient approval process.
TIP #3 – Don’t include personal property in the real estate offer
If something can be moved without causing damage to the property, it’s called “chattel.” Examples of chattel include:
- Area carpets
None of these items are permanently attached to the property, but they might be involved in the sale anyway — so, the mortgage industry is used to seeing chattel as part of an offer. But, if you include chattel in the contract, there’s a 99% chance your mortgage lender will require those items to be removed, even if you state they have no value.
How to get around this: Put the items on a bill of sale. You can even reference the bill of sale in the offer to purchase — “Offer is contingent upon Seller also agreeing to Bill of Sale dated xx/xx/xx that accompanies this Offer.”
TIP #4 – Encourage buyers to get moving on their mortgage as soon as the offer is accepted
This doesn’t happen often, but when it does, it can be a big problem.
When you close on a home, there’s something called a financing contingency. This basically states, “This sale is dependent on the buyers actually having enough money to make the purpose.” The contingency usually gives a timeframe (30 days is common) for the buyer to find a lender and secure the necessary funds.
Some buyers (often first-time homebuyers) don’t understand that the financing and appraisal contingency clocks start ticking as soon as the contract is accepted. They wait until after the home inspection before contacting their lender.
By that time, 15 days of a 30-day financing contingency could already be gone.
Learn more about being a first-time homebuyer.
TIP #5 – When putting less than 10% down on a condo, or when the condo is an investment property, allow 45 days for the financing contingency
In the mortgage world, there are mainly two types of condo transactions – limited review and full review.
Investment condos always get a full review, which, as the name implies, requires intensive documentation and review time.
Owner-occupied condo purchases with less than 10% down also get a full review, and need some specific information before moving forward:
- Reserve studies (if available)
- Insurance documentation for the association (fidelity, hazard and liability)
- Detailed questionnaire that must be completed by the association manager.
It takes time to not only gather the information but also for the underwriter or condo review department to analyze.
If the borrower is putting 10% or more down on an owner-occupied condo or second home, and the project is established (the developer is no longer selling or building units), then the condo review is considered “limited,” meaning we can simply use the information provided by the appraiser.
Either way, condo financing can be confusing.
How to get around this: Talk to your mortgage lender. They’ll help you figure out what you need, by when, and how you can get it.
Real estate and mortgage lending are team sports. The better we know what’s important for each other, the better we can help our mutual clients get to the closing table with no unpleasant detours.
Questions? Ready to get started? Call Accunet today.
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