by Dian Hymer
When your loan agent or mortgage broker calls with the good news that your mortgage has been approved, be sure to ask if there are any conditions that must be met. Most mortgages are approved subject to certain conditions being satisfied before closing. This means that your loan is approved as long as you can satisfy the lender's requirements. If you can't, you won't get the loan.
Some of the conditions will be easy to satisfy, like providing a legible copy of an addendum to the purchase contract. The lender might need verification of some of your financial documentation, such as a copy of the gift letter from your parents, or a signed copy of your most recent tax returns. The lender might want proof that you paid down a charge card account, or that you liquidated stock for part of your down payment.
Buyers whose down payment is coming from the sale of another property will probably be required to provide the lender with a "HUD-1" from the sale of that property. A HUD-1 is a settlement sheet that shows the net proceeds from the sale. Lenders need to verify the source of the buyers' down payment funds before they will grant a loan.
First Time Tip: Get a copy of the written loan commitment from the lender so that you can personally review the conditions before you remove your financing contingency from the contract. If you are confident that the loan conditions are ones that you can meet with no problem, go ahead and remove your financing contingency. But, if you have any doubts about your ability to satisfy a condition before closing, don't remove your loan contingency unconditionally.
For example, suppose you are selling a home in order to buy another one. When you made your offer to purchase your new home, you were confident that the sale of your old home would go through without a hitch. So, your purchase contract didn't include a contingency stating that the sale of your old home had to close first.
Now you have some concerns about the sale closing. Not only that, your loan approval for the new home is conditioned upon a HUD-1 from the sale of your old home. To be safe, make the removal of your financing contingency conditional upon the sale of your old home closing.
Sometimes a loan condition will be something major that might not be easily satisfied. If your credit history is shaky, the lender might want you to put more cash down. You might not be able, or willing, to do this. Or, the lender might require a copy of a building permit for renovations the sellers did to the home. If the permit doesn't exist, the lender may not grant the loan unless a contractor can confirm that the work was done properly.
You loan commitment also includes the terms of the loan you have been approved for. The commitment should also tell you when the loan commitment will expire.
Sometimes loan commitments expire before the closing date in the purchase contract. If so, ask the lender to extend the loan commitment before you remove the financing contingency. If the lender won't grant you an extension, ask the sellers to close early as a condition of removing the financing contingency. The sellers may need to rent back until the closing date agreed to in the contract.
The Closing: Don't take unnecessary risks. Ask the sellers for an extension if your financing contingency removal is due and you are unsure about your ability to satisfy a loan condition.
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