It seems to be a sign of the times, the new normal for home purchases.
The all important mortgage contingency clause. There is a date on the contract, then there is reality. It would seem that more and more requests for extensions on the mortgage contingency dates are being made by the buyers attorney these days as lenders heighten their scrutiny of their customers mortgage applications.
Sellers get very worried as these extensions come in. Is the buyer going to be able to perform? Is the house going to have to go back on the market? Valid questions indeed. Two questions I cannot answer with all certainty.
How can you protect yourself as a seller? The long and short answer is... be prepared.
You can request that the buyer show a pre-approval rather than a pre-qualification at the time of the offer. The pre-approval is much stronger than the pre-qualification, it means the buyer has made application already and the lender has pulled credit, verified certain things. It is still not a guarantee that the buyer will be given the loan. HOWEVER, based on the loan product the buyer is using or the particular lender they are using it may not be possible to obtain a pre-approval from the buyer. Sometimes a pre-qualification is all you can get.
You can request proof of funds for future deposits but that doesn't mean the loan will fund either.
There truly is no easy answer, and often it is not the fault of the buyer that these requests for an extension of the mortgage contingency have to be made.
Pushing a potential buyer to tighten those dates up when an offer comes in can also lead to issues for the seller. It can lead to an emotional reaction from the buyer to do so, and an inability to perform at the end of the day!
The cold hard fact is that mortgage contingency extension requests are on the rise, I hear it from real estate agents and from real estate attorneys alike. It seems to be the "new normal" and it is something we need to prepare for. We hope it won't happen, I am not surprised when it does happen. I also don't believe it automatically means the buyer won't get the mortgage after all.
Sometimes the mortgage approval comes in loaded with contingencies itself. When your attorney sees what is outstanding we may have a better idea what is going on. Some is normal, like pulling a buyers credit again just before the closing, or proof of insurance by the buyer for the home, clear title to the home. These are typical, to be expected and should not raise the sellers anxiety level.
When the buyer is not providing documents required by the lender in a timely fashion, that raises my alarm status for sure and a call to the buyers agent is in order to try and determine what is going on.
If I see an unrealistic time frame for a mortgage contingency date and closing on an offer to purchase I double check those dates with the buyers agent and ask if those dates came from the lender.
I know some lenders are capable of a 30 day mortgage commitment and a 45 day close. A certain few are even capable of a 21 day mortgage commitment and a 30 day close, but that is very, very rare. Some lenders just don't work that fast, certain programs will require longer time frames. I am far more comfortable seeing a 45 day mortgage commitment and a 60 day close, which can be moved to earlier dates if the commitment comes in faster. (On or before works well for me!)
Just another twist in the selling process we see on a daily basis in the Southern Litchfield County housing market!
And the most important and hardest thing to realize is, it ain't over till the fat lady sings at the closing table!
Originally posted at "Mortgage extension requests on the rise, what's a seller to do?"
Andrea Swiedler, Realtor, Southern Litchfield County Real Estate
2017 President, Greater New Milford Board of Realtors
2017 Connecticut Magazine 5 Star Realtor
Coldwell Banker Residential Brokerage
Litchfield County Regional Office,375 Danbury Rd, New Milford, CT 06776
© Andrea Swiedler 2009 - 2017
Always do right. This will gratify some people and astonish the rest. - Mark Twain