Good Faith Efforts to Obtain Loan Approval for Home Buyers

For home buyers, making good faith efforts to obtain loan approval is crucial for a smooth home buying process. This involves providing detailed financial information to the lender.

The lender will request documentation, such as pay stubs, bank statements, and tax returns, to verify the buyer's income and creditworthiness. This documentation is typically required within 10 to 14 days of the loan application.

By providing this information promptly, home buyers can demonstrate their commitment to obtaining a loan and increase the likelihood of approval.

The pre-approval process is a crucial step in securing loan approval. It's usually initiated by the buyer providing financial information to a lender, who then issues a pre-qualification letter stating the maximum loan amount the buyer can borrow.

In Arizona, for instance, the Arizona Association of Realtors Residential Purchase Agreement requires loan approval without Prior to Document (PTD) conditions to be obtained no later than three days prior to the COE Date.

The lender will typically request financial documents such as pay stubs, bank statements, and tax returns to verify the buyer's income and creditworthiness. The buyer's obligation to complete the sale is contingent upon obtaining loan approval without PTD conditions.

The loan contingency provision in the contract usually specifies the timeframe for loan approval, which can be as short as three days in some cases. The parties can agree to a longer timeframe if needed.

The buyer is required to sign all loan documents or deliver notice of loan approval without PTD conditions to the seller or escrow company.

Contingency Management is a crucial aspect of making good faith efforts to obtain loan approval. It involves having a plan in place to mitigate potential risks and issues that may arise during the loan application process.

Having a contingency plan can help you stay on track and minimize delays or setbacks. For example, if your lender requires additional documentation, having a plan to gather and submit it quickly can keep your loan application moving forward.

In some cases, having a contingency plan can even help you avoid loan approval issues altogether. By anticipating potential problems and having a plan in place, you can address them proactively and keep your loan application on track.

Contingency removal can happen in two ways. One type is an active contingency, where the buyer has placed conditions on the purchase contract that must be met before the home closes escrow.

An active contingency is removed once the buyer satisfies the conditions, such as getting the money to buy the house or the house passing inspection.

A seller might issue a Notice to Buyer to Perform (NBP) in some states when the contingency period has expired, putting the buyer on notice that time is running out.

If the buyer fails to remove the contingency, the seller is free to cancel the contract after the contingency period has passed.

Passive contingency removal, on the other hand, occurs when the contingency simply expires without the buyer taking action.

An appraisal contingency is a common feature in real estate contracts that gives buyers a crucial piece of information.

This contingency involves an appraisal of the home's value, which is critical for the buyer as it determines how much the lender will loan.

The appraisal amount is unlikely to exceed the agreed-upon purchase price, so if it's lower, the seller may have to lower the price or the buyer can abandon the contract.

In cases where the appraisal amount is lower than expected, the buyer may have to re-negotiate the price with the seller, which can be a challenging and time-consuming process.

The appraisal contingency is a safety net for buyers, allowing them to walk away from the contract if the home's value isn't what they expected.

A loan extension can be requested by the buyer, but the seller is under no obligation to agree to it. This means they can say no, and the buyer will have to accept the decision.

The buyer might be required to put down more earnest money in exchange for extra time, which is a risk they should be aware of. This could affect their budget and overall financial situation.

A loan contingency clause can have a downside for the buyer, obligating them to purchase the home even if they've been unable to obtain a loan. This is something they should pay close attention to when reviewing the terms of the contingency.

The Arizona Association of Realtors' Residential Purchase Agreement specifies that the buyer must obtain loan approval without Prior to Document conditions no later than three days prior to the COE Date.

A loan contingency clause in a sales contract can protect the buyer from having to purchase a home when they have been unable to get a mortgage.

To keep this protection, a buyer must make a good faith effort to secure financing. This means they can't just give up on getting a mortgage without trying.

If a buyer cancels the contract without securing financing, they may lose their earnest money deposit. This is a serious consideration, as earnest money deposits can be substantial.

A buyer might still want to purchase the house even if they're unable to get a mortgage. This is why it's essential to make a good faith effort to secure financing in the first place.

Here are the key points to remember: