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One of the most critical things when getting your mortgage to purchase a home is the loan contingency. Speaking from recent experience, and understanding the new reality of overly scrutinizing lenders, here are Ed’s must-know things when it comes to loan contingencies:
Don’t Take Shortcuts
Firstly, please, please, please, work with a mortgage lender who has a proven record of being able to secure a loan. This has got to be one of the most important to-do’s before you go out shopping for a home. This is as important, and may even be more important than the loan rate you lock in.
Yet, with still so many choices out there – direct lenders, mortgage brokers, etc. – you may ask yourself, how do I find a good one? The best source, I’ve found, is to get recommendations from friends, relatives, or trusted realtors.
A good lender who’s truly looking out for your best interest should ultimately be able to tell you what you can and cannot afford. A great lender will go above and beyond to get the job done.
Do Your Homework
Where are your downpayment funds going to come from? From your own savings? Cashing out some WebVan stock? A gift from your solvent parents? Whatever the source of your funds, you have GOT to make sure you let your mortgage lender know early on in the process. Any funds that are NOT coming directly from your own savings, might be subject to major scrutiny by the lender – and you may find yourself having to provide a boatload of documentation showing where the money’s coming from, or, in the case of a gift, additional scrutiny on whoever was giving you the money. And of course, as Murphy’s Law would have it, that kind of scrutiny can very well happen at the 11th hour when you least expect it, probably right before you’re supposed to close escrow.
Final Thoughts
Be realistic about your loan contingency period. Don’t put it at 14 days if you’re not 110% positive that your lender can do it. Better to be conservative and ask for more days than you think you’ll need.
Be sure your lender knows of any red flags during the contingency period. Find this out early on in the process. Continually ask your lender what the current conditions to close (CTCs) are, and are they being met.
Remove your loan contingency as close to on time as possible. No one, particularly the sellers and the sellers’ agent, get more stressed out when loan contingencies aren’t removed on time.
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Wall Street is nervous. It’s plastered everywhere. Why should we as REALTORS® care? Because, it’s the investors on Wall Street who fund about half the mortgages in the US through the secondary mortgage market. Their capital replenishes the pool of cash that local lenders (banks, credit unions and others) use to help your buyers finance their home. That doesn’t mean the money is entirely gone, though. We’ve still got options.