By Dian Hymer
Buyers competing against other buyers often waive contingencies to make their offer more attractive to the sellers. From the seller's point of view, the fewer contingencies there are, the better.
Normally, buyers include contingencies in their purchase contracts in order to protect themselves. A contingency is a condition that must be satisfied before the sale can go through. Common contingencies are for the buyers' financing, inspections, title review and for the sale of another property. Usually, if the buyers are unable to satisfy a contingency, they are released from the contract without penalty.
It's risky to waive a contingency if in fact the condition covered by the contingency must be met before you can complete the purchase. Let's say you need a mortgage for 80 percent of the purchase price in order to buy a property. You've talked to a mortgage broker who told you that it should be no problem for you to get a loan.
After a long search, you see a home you really want to buy. Unfortunately, you're not the only one who wants to buy the listing. So, you decide to place your best foot forward and make an offer that is not contingent on obtaining financing.
You could get lucky. Getting financing might be a snap. But, if it's not, and you can't close the deal on time, you could suffer serious financial and/or legal consequences.
Lenders consider three factors when they evaluate a borrower for a mortgage. First, they examine the buyer's creditworthiness. For this part of the approval process, you need to submit a loan application to the lender or mortgage broker, and have your credit and financial information verified.
The second factor a lender considers is the title record on the property. The third factor is the property appraisal. After all this documentation is assembled, the package is submitted to the lender's underwriter for final loan approval.
Preapproval is a procedure by which you become credit qualified for a mortgage before you find a property to buy. There are advantages to being preapproved. You will be in a position to close a sale quickly. And, a preapproval letter from your lender makes a good impression with the seller, which is helpful when there is competition.
House Hunting Tip: Before making an offer that does not include a financing contingency, consider the following. First, find out if you're really preapproved. Some buyers are being preapproved after a casual phone conservation with a loan agent or mortgage broker. It's impossible to get an underwriter's approval without submitting a loan application and having the information contained in the application, and your credit, verified.
Unless you know what the lender is looking for, you could unwittingly omit relevant information about your financial situation that could later negatively impact an underwriter's decision. Your broker might say you're preapproved based on your conversation. But you could later be denied a loan based on information the broker didn't have at the time he "preapproved" you.
It's risky to make an offer without a financing contingency unless you've gone through the formal preapproval process and have underwriting approval.
Another issue to consider when making an offer without a financing contingency is the appraisal. If the house doesn't appraise for the purchase price, do you still want to buy it? If not, you need to include an appraisal contingency that makes the contract contingent on the property appraising for the purchase price.
The Closing: Even if you decide to make an offer without a loan or appraisal contingency, be sure to reserve the right to approve the title record on the property.
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