The final hurdle: Can the buyer qualify for a loan?

The California Residential Purchase Agreement gives the buyers in most cases 21 days to remove all of their contingencies. 

The contingency most contracts leave to the last is the loan approval, which makes a lot of sense. 

Why would buyers put their deposit at risk, which is what you are doing when you remove your final contingency in writing, before they actually know whether or not they can get a loan large enough to buy the house of their dreams? 

This puts the pressure on the buyers and their lending institution, including all of its representatives, to go to work getting their home loan approved. 

The buyers and sellers use some of this time to focus on what is and is not working in the house after the home inspector has come through with a fine-toothed comb. 

While they go back and forth about who needs to pay to repair or replace any of these items, and whether or not the washer, dryer, refrigerator, and patio furniture are staying with the house, the lender’s team is working on the numbers. 

Not the numbers in the house address, the water pressure, or the electrical panel voltage, but they’re working on the precise numbers regarding the buyers financial ability to qualify for the loan needed to purchase the house. 

When you accept an offer to purchase your house, you see the buyers’ basic qualifications. This comes in the form of a current bank statement to show that they have the money on hand to make the down payment and cover their closing costs, and a pre-approval letter from their lender to show that, based on a preliminary review of documentation such as credit scores, pay stubs, and recent tax returns, the buyers are qualified for a home loan that matches the price they are offering.

The real financial fun begins once the 21-day clock starts ticking.

The buyer’s financial package is put under detailed scrutiny, which can take that entire three weeks. This can be agonizing for both the buyers and the sellers. 

The lender’s team sets up a financial obstacle course for the buyers, where they ask for more and more supporting documentation. Each time more information is provided, more explanation is required. 

Asking for a status along the way generally results in a response such as “it’s still under review,” or “we’re waiting to see if the underwriter will remove the conditions.” 

Sometimes the results are devastating for both parties. The buyer does not get approved for the loan, despite repeated attempts to meet the lender’s conditions, and often taking more than the 21 days allotted. 

At this point, the both parties have some decisions to make. 

Can the buyer find another lender with more options that might qualify them now that their exact financial situation has been discovered? Will the sellers cancel the escrow or give the buyers more time to find another lender?

Now that the holidays are here, I’d say let it ride.

I'm Leslie Eskildsen, Realtor, and Contributing Columnist to the Orange County Register Sunday Real Estate Section 


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