Perhaps survival is a bit extreme, but there are many aspects to the mortgage contingency that need to go as planned. If not, you risk a bumpy ride and a challenging closing.
Delivery of Earnest Money
At this point, the attorney review is often complete (which is a big step in the contract process). Next, the second deposit of earnest money is normally given by the buyer, usually the final money they give before the closing.
The Property Appraisal
In most transactions, the buyer is getting financing for the purchase of their new property. In those cases, the lender will require that an appraisal is done on the home to ensure the buyer is not overpaying.
Also, it’s important to clarify a few of the different players potentially taking part in the process during the mortgage contingency:
- “The Lender” means your contact person, the one you decided to work with and the one you’re regularly talking with
- A “Mortgage Broker” is someone who can broker a loan by finding a bank to loan you the money, but their company is not able to close on their own without finding you another banker or investor to lend you money
- A “Mortgage Banker” is similar to a Mortgage Broker, with the major exception that the Mortgage Banker can lend with their own money (meaning they are a bank), and often do or will find you another source of funding just as a Mortgage Broker would. I have found that a Mortgage Banker is the best route to go with, as they tend to have the most options available
Communication between you and your lender at this juncture is vital. Consistent (likely daily) emails or phone calls are occurring to keep everything in order. The ability to respond is a two-way street too — the lender should be reaching out to the buyer as often as needed. This doesn’t necessarily mean they’re lazy or uninformed since they are simply the messenger from the bank that they are getting you the loan through. And, likewise, the buyer must get whatever the lender requests back to them pronto in order to keep things on track.
If you’re not hearing much from them after the appraisal comes back, that’s not a good sign in my book. If the appraisal is received and there are no issues with it, a good lender will be asking as much as possible now so as to avoid a bunch of headaches and playing “catch up” later, when time is even tighter.
Warning! Mortgage Contingency Dont’s
You will want to make absolutely sure that any money being moved can be explained to your lender. “My uncle Joey said he wanted to help out” is not a valid reason, but transferring money from your own investment account into your checking account should be no issue. You are, however, able to receive a “gift” from someone else, but there is a specific process that must be followed in order for most banks to allow the financial gift to be used.
Also, do not make any big purchases from when you go under contract (or ideally when you start actively looking at homes) until after you’ve closed on your home. No bedroom sets, no new cars, no jet skis, nada. You are under a financial microscope during this entire process, and anything considered abnormal or irresponsible will be detrimental and could cost you dearly. The day after the closing, go wild and buy whatever you want, but not earlier than that — even the day of the closing. The bank loaning you the money may well be checking your credit and employment up to and including the closing day.
The final goal in the mortgage contingency is reaching a full, unconditional loan approval, known in the biz as the “clear to close”. Everyone celebrates — the buyer because they are done sending documents, and the seller because it now means that the deal is 100% solid. Next stop, the final walk-through and then the closing! And, of course, preparing to move.