Conditional Loan Approval

Asked by Kim Nwachukwu, Irving, TX Sat Jun 26, 2010

In connection with the new hurdles we face with loan approvals any thoughts on the number of days needed for a well qualified buyer to obtain conditional loan approval (just the buyer, not property meeting the lenders requirements)? I have agents making offers on listings asking for 30 day financing contingencies and swearing up and down that that is what their buyers need. Is this where we are or where we are headed? Any thoughts or experiences to share?

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Mon Jun 28, 2010
Kim - 30 days is somewhat long for getting the conditional approval, 3 weeks really should do it.....

Where there's truly a disconnect regarding these time frames is the difference between the written contract date and the actual date we receive the complete contract...This is usually a week or so.....there's also additional delays created when we need to wait for the pre-lim, copy of earnest funds check, title & escrow fees (our form that we need fully completed by the escrow officer so we can issue the new GFE)....

In spite of these delays, most realtors insist on trying to close a deal in 30 days or less, knowing full well that this process has been taking 45 - 60 days to close/record.....

Interesting question, keep em coming!

best, Jeff Marr
Stanford Mortgage
1 vote
Bruce Lynn, Agent, Coppell, TX
Sun Jun 27, 2010
Kim,

My thought is that there is rarely ever final loan approval until the day of closing or perhaps the day before.
So if you are thinking about what number to put in the 3rd party financing addendum my thought is about 10-15. That should give the buyer plenty of time to shop/decide on a lender and submit their paperwork. Of course in most instances they are not going to get final loan approval in that time, but the lender should be able to give them a great idea of if they are qualified or not and time to get out of the contract if they are not.
A lot of time it's just an education process. There seems to be no "standard" number to put in this blank. Of course the longer the better for the buyer....and the shorter the better for the seller. I consider this another "option period" and perhaps it should be tied to option or earnest money.... $1000 earnest for 10 days, $2000 for 20 days....$3000 for 30 days.... need more time to shop a lender ....ok seller will grant for increased earnest money. What do you think?
Web Reference:  http://www.teamlynn.com
1 vote
Bruce Lynn, Agent, Coppell, TX
Mon Jun 28, 2010
Kim, I don't think KO solves the problem. Really I don't like to go through the work of KO, especially with case in point. Am I going to get a buyer excited about this home, spend a good amount of time showing it 2x, writing an offer, negotiating it, only to have buyer #1 come back and say...ok we'll remove our 30day financing contingency. Then need to go back to my buyer and tell them the excitement was not well founded and that we have wasted all their time on a property they could not have from day 1. No thanks.

I have your exact pain, but don't think KO will solve it.
Web Reference:  http://www.teamlynn.com
0 votes
Kim Nwachukwu, Agent, Irving, TX
Sun Jun 27, 2010
And by the way Bruce - the idea to tie the number of days to the earnest money is a good one! I got windy in my last post and forgot to mention that. Does that really help though if at the end of the day the buyer can still pull out with no compensation to the seller? Poor seller still ends up holding the bag.
0 votes
Kim Nwachukwu, Agent, Irving, TX
Sun Jun 27, 2010
Not a question about how many days to allow - I generally advise 10-15 for conventional and 21 for FHA and will continue to do exactly that. The problem starts when a buyer is told that they can't get unconditional loan approval for a period of 30 days, and when their agent advises them to ask for a 30 day financing contingency. Seller counters with a more reasonable amount of days, buyer refuses because they fear losing their earnest money without that absolute commitment from their lender. Deals will fall apart from this - sellers are not going to put up with giving buyers 30 days because of poor advice from their agents. If the buyer isn't satisfied or comfortable that they have the financial wherewithal to close the deal, regardless of having or not having unconditional approval, they shouldn't be offering in the first place. They shouldn't expect the seller to shoulder all the risk - so the question is does the use of a kick-out clause for financing protect the seller any better? - or is it just useless? Is it just a rehash anyway because as Bruce mentioned, even in the past has never has been over until it was over. Difference was THEN the seller had the earnest money as damages - now, not so much. I have learned today that multiple agents have received offers with requests for 30 days recently, they are all pretty much coming from the same brokerage. Somebody had "a meeting". I wonder how that brokerage is handling offers for their sellers? Are they just saying "hey baby - here's the deal, you got to give the buyer 30 days and a long close and if you don't get the earnest money when the buyer bails, well blame Obama?" What will happen is what will happen, but if you ask me sellers shouldn't have to simply roll over and take their properties off the market for 30 days while buyers get a free shot at changing their mind because of this new government interference in the market. Like I said earlier, a lot of it does a bunch of good for buyers - but sellers are really getting the short end of the stick with these ever changing guidelines.
0 votes
Kim Nwachukwu, Agent, Irving, TX
Sun Jun 27, 2010
All good answers. Buyer and their agent are holding firm to the 30 days, and seller really wants to sell. I have advised the seller over the course of the past few days that the 30 day request is unreasonable, and told them the same thing that RJ said - what's the point of putting up the earnest money if a couple of days before closing, after the seller has made their plans and started packing, the buyer can simply get out on what to them equates to a no-harm, no-foul contingency for their side?

I wonder if a kick-out clause would help any? It wouldn't be the best solution for the seller, since dollars to doughnuts agents would stop showing (property is getting tons of showings and lots of interest, but we do not have another offer presently). Kick-out is usually used to overcome a contingency upon sale of other property, but could it be effectively used in this case if the seller decided they wanted to give a buyer 30 days (and we are on about a 40 day close frame)?

The sellers' property will remain on the market during the contingency period. Purchaser may remove the contingencies and perform under the terms herein within 48 hours after receipt of written notice that seller has accepted a secondary contract. Should the purchaser elect to withdraw and not remove the contingency, seller will instruct (title company name) to release the buyer's earnest money to the buyer, will release the buyer and the selling broker from all further obligation.

While the government is trying to protect the buyer, they've done the seller dirty on this. Just like Laura said, we are all being turned back into rookies again with this. Is what I have cobbled together a reasonable solution or not? Let me know what you think - I would be so appreciative.
0 votes
Pat O'Reilly, Agent, Irving, TX
Sun Jun 27, 2010
Really depends on the lender. It is getting more and more important that the buyer work with competent lenders.
0 votes
The Roskelly…, Agent, Gambrills, MD
Sun Jun 27, 2010
Oh Kim I'm with you on this one,

The new guidelines that are coming out daily (or so it seems) have me feeling like a rookie. The lender's that I use on a regular basis can still give a conditional loan approvall within 7 - 10 days. However with the new GFE guidelines there are several required approval stages that we didn't used to have. Buyer has X amount of days from issuance of the GFE to approve it, then if there are any changes they have to be notified and re-approved. There is better protection for the consumer buried in all this red tape but like many government programs it has unnecessary layers as well. I just grin and bear it and move forward.
0 votes
T.E. & Naima…, Agent, Dallas, TX
Sun Jun 27, 2010
The only bank that I have seen taking longer than 30 days is Bank of America. I would stay away from them. They make the homebuying experience a total nighmare for people and they don't have the greatest product .Buyers can get a conditional pre-approval in less than 2 weeks with the right lender.

Naima
Web Reference:  http://www.MyDFWLakeHome.com
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