One of the first and most important items I discuss with buyer clients in our initial buyer consultation is how to structure an offer to purchase that protects your deposit. By adding an appropriate mortgage contingency and mortgage commitment date to your offer to purchase for a home in the Boston real estate market, you can protect your earnest money deposit and down payment from being lost to the seller in the event your financing does not get approved.
What is a mortgage commitment?
A mortgage commitment is a letter from the home lender (mortgage bank) that commits to providing the buyer a mortgage loan for a given property. When you write an offer to purchase, you can structure it with a mortgage commitment date written in to the mortgage contingency. A mortgage commitment date is the day by which your home loan must be approved by the underwriter at the bank and the commitment letter granted. This date is typically set 3-4 weeks from the signing of the Purchase and Sale Agreement (you have seen our Boston home buying timeline, right?).
What is a clean mortgage commitment?
But the problem is that not all mortgage commitments are so called “clean”. A clean mortgage commitment is one that has no conditions still outstanding (such as verifying assets, or documenting employment history, or examining condo association regulations). In other words, the commitment to lend is not contingent on the home buyer presenting any more verifying documents. The home buyer can be confident that the bank has committed to grant the loan at closing with a clean mortgage commitment. Deposits protected.
Without a clean mortgage commitment, there are still some outstanding issues that need to be cleared up and it could lead to problems done the road. And if problems arise after the mortgage commitment date has past, then your deposits could be lost.
So how do you prevent this? I cover how in detail at a buyer consultation meeting, but here’s the quick version.
The importance of a good mortgage lender
Find a great mortgage professional and make sure your “buying team” (lender, attorney, buyer agent) all have clear lines of communication to each other. Let me give you an example:
Recently, I received a mortgage commitment for a buyer client with no conditions. Absolutely clean! How did this happen? The mortgage professional was experienced and knew exactly what to ask the buyer to present to him for documentation from the start. Because of the mortgage professional’s experience, he was able to foresee what the underwriter would need in order to process the loan completely. The buyer was organized and provided all necessary paperwork in a timely manner. All the documents relating to the condominium association were requested early. There was clear communication between the mortgage professional, buyer, and myself as the real estate buyer agent. All parties were able to work together to make this happen.
On another recent purchase, a different mortgage professional asked for no extra paperwork from the buyer after their initial meeting. Even with several phone calls and emails from the buyer’s real estate attorney and myself he insisted that he needed no additional paperwork at this time. This loan went to underwriting and kicked out a list of approximately 10 additional items that were needed from the buyer! Some of these conditions could not be foreseen but the majority were simple items that an experienced mortgage professional would have asked for initially. This caused extreme stress on the buyer as he and I had to run around 4 days before the closing and gather paperwork in order to make sure the mortgage went through.
Both loans ended up closing on time. But which one would you prefer to be?
Wondering what the next steps are to make sure you find a great mortgage lender who will help protect your down payment? Start here: