What Sellers Need To Know About Their Buyer’s Loan Process

When you are selling your home, you may not care much about the buyer’s financing.  However, as the process from contract to closing progresses, you should have a basic understanding of what is happening “on the other side”.

When deciding whether or not to accept an offer on the sale of your house, price will naturally be your number one consideration. Beyond the amount offered for your home, you should also pay attention to the financing terms being presented by a potential buyer.  The majority of residential real estate contracts in the Chicago area use what is known as the MultiBoard Residential Real Estate Contract (an official, copyrighted form. Be aware of fakes meant to catch the unwary off guard). As of early 2013, it is in version 5.0.  This contract and many others, which may also be used in Illinois will typically provide a mortgage contingency clause for the protection of the buyer.  It is a very standard clause, which anyone who will be financing their purchase is going to insist upon.  It means that IF the buyer cannot obtain certain a certain type of financing, they are not obligated to buy your home, provided that the buyer notifies you (typically through the attorneys) by a certain date as set forth in the contract.  There is a little bit more to it than that, but essentially, your buyer needs to be approved for the type of mortgage that they are looking for. As an example, the buyer might condition the contract on his or her ability to get a conventional, fixed mortgage with an interest rate that does not exceed 4.5%.  If they only qualify for a mortgage at 6%, then it is their choice whether or not to move forward or to back out of the deal and get their earnest money back. The contract will call for a date by which your buyer’s bank needs to issue a written commitment to finance the loan.  Your buyer might not have that written commitment by what is known as the “mortgage contingency date”.  Do not panic if this happens.  It can and often does happen for any number of reasons.  Sometimes the underwriting department is backed up. Sometimes an appraisal report still has not been issued. Or it might be a matter of having an issue cleared up on the buyer’s credit.  If the buyer does not have their financing “committed” by the time that the mortgage contingency date rolls around, the buyer can either cancel the contract or else ask for more time. Most sellers who are asked to approve an extension of time will do so if they are still interested in selling their home. Sometimes it takes more than one extension in which case it is usually a good idea to find out what is going on, if for no other reason than peace of mind and to make sure that the closing date is still expected to be met.  There might even be something that you can do if the delay is within your control. For example, if you are selling a condo and the financing commitment is being held up because your condo association has not provided certain documents to the buyer’s lender- you might be able to give your association a nudge or walk on over to discuss the delay.

The MultiBoard Contract (and others) provide the option of seller financing, in case the buyer cannot be approved by his or her own lender. This gives sellers a few options in controlling the buyer’s loan- provided that certain requirements are met.

Not all buyers are going to want or need a mortgage. Some offers are for “cash”. This doesn’t mean that your buyer is going to show up with a suitcase full of cash, but rather than no mortgage is necessary. This is often viewed as more favorable to sellers because they do not have to worry about the buyer’s ability to get a loan and it may also provide for a quicker closing.  You might want to ask the buyer to verify the source of the funds as a safeguard.

To find out more about seller financing or the legal process of selling your home in Illinois, ask to speak to attorney Carol O’Connor Cadiz at 888 878-5442 who has been helping buyers and sellers of residential real estate for over ten years.