If the real estate agent and mortgage lender can work together to review contract or contract amendment language BEFORE the parties sign on the dotted line, a lot of problems could be avoided. After 18 years at the helm of Accunet Mortgage and having a front row seat to literally thousands of purchase transactions, here’s what I wish every real estate agent would keep in mind regarding what’s said and left unsaid in an Offer to Purchase, Counter Offer or Amendment.
TIP #1 – Please don’t say bad things about the property in writing, unless you want the lender to force you to fix them before closing.
We see this way too often when the buyer is seeking a price reduction or closing cost credit after the home inspection: “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.”
Give that amendment to a mortgage lender and we’ll require the “defects and safety hazards” to be repaired before closing. We simply can’t lend on a property unless it’s in good and marketable condition at the time of closing. It’s simple – less is best. 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.” That’s a slam dunk for a lender.
TIP #2 – Provide your lender with all amendments right away.
There have been many times when we get a “surprise” amendment only a day or two before closing. It’s not a surprise to the agents, buyer or seller, but no one remembered to let the mortgage lender know until someone notices the Closing Disclosure doesn’t reflect a price change or closing cost credit. “Oh, that’s right, we agreed to a $3,000 closing cost credit and forgot to send it to you.” Sometimes this can be a major problem because the appraiser may need to comment on how the Amendment impacts their opinion of value. Appraisers aren’t just sitting at their office waiting to turn around requests to review a forgotten amendment in 24 hours. Forgotten amendments and last minute fire drills cause stress.
TIP #3 – Please don’t include “chattel” (personal property) in the real estate offer.
For some strange reason, it’s perfectly okay to include washers and dryers, refrigerators, microwaves, ovens, ranges, and water softeners in a real estate offer. Those items are all chattel, but the mortgage industry is used to them being part of an offer. If you include a pool table, lawn mower, or furniture in the contract, 99 times out of 100 your mortgage lender will require those items to be removed, even if you state they have no value.
The solution is simple – take those non-standard items and put them on a Bill of Sale. You can even reference the Bill of Sale in the Offer to Purchase so that they’re tied together. “Offer is contingent upon Seller also agreeing to Bill of Sale dated xx/xx/xx that accompanies this Offer.”
TIP #4 – Encourage all 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. Some buyers (often first-time buyers) just 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. Don’t assume the buyers know what to do next. Enough said.
TIP #5 – If the buyer is putting less than 10% down on a condo, or the condo is an investment property, allow 45 days for the financing contingency if possible.
In the mortgage world, there are two big categories of condo transactions – Limited Review transactions and Full Reviews. Investment condos always get a full review, which as the name implies requires a lot more documentation and review time. Owner-Occupied condo purchases with less than 10% down also get the full review treatment which involves gathering by-laws, budgets, reserve studies if available, insurance documentation for the association (fidelity, hazard and liability), along with a detailed questionnaire that must be completed by the association manager. It not only takes time to 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 process is typically “Limited”, meaning we can simply use information provided by the appraiser.
CONCLUSION: – 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.