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In Contract

Understanding the details of your purchase contract is vital. Your loan consultant should be experienced and possess in depth knowledge of purchase contracts. No two purchase contracts will be the same, however every purchase contract will contain intricate details, instructions, and obligations that both the buyer and seller will have to fulfill in order to meet your contractual obligations.

The primary contractual obligations that a buyer faces that are likely to relate to their being able to securing financing are:

- Appraisal Contingency
- Inspection Contingency
- Wood Destroying Pest Contingency
- Loan Contingency

In addition to these points the purchase contract also states who will be responsible for paying for specific third party expenses, necessary reports and inspections, and transfer fees.

As soon as you are in contract and you have a subject property for the loan you are applying for, your loan consultant will issue a good faith estimate. The good faith estimate will breakdown all the fees associated with the transaction, and should be based on expense quotes provided by the actual third party service providers that will be completing the work. Typical third party fees that you will want to confirm are title, escrow, and lender fees. 

It is your purchase contract that will ultimately determine who is responsible for paying for these costs.

Typically borrowers pay the lender fees, however seller credits written in to the contract can be used to satisfy this expense. The escrow fee is typically split 50/50 between buyer and seller. As for title insurance, typically the owner's policy will be paid for by the seller, and the lenders title policy will be paid for by the borrower. Transfer fees and taxes are also typically paid for by the seller.

As for contracted third party inspections, these are typically paid for by the buyer (but sellers have been known to pay for inspections from time to time), and include home inspections, appraisal inspections, termite and wood destroying pest inspection, septic inspections, etc. Usually there are contingencies associated with each of these inspections leaving the buyer an opportunity to withdraw from contract without recourse should one of the reports or inspections uncover something unacceptable and unreconcilable.

Regardless of who is responsible for these fees, all the fees associated with closing the transaction should be included on the good faith estimate provide by your lender. For this reason the good faith estimates final figure can be a little unsettling, but as soon as you realize it includes fees the seller is contractually obligated to pay, and subtract those out to discover your actual obligation, the final cost to close is usually within original expectation.
 
What is important to understand about fees, and your contract is everything is negotiable, however those negotiations have to take place while making offers and moving into contract, once in contract you are responsible for what you agreed to.

The other primary contractual obligations that a buyer may find in their contract are likely to play a role in loan approval itself. The seller will expect whatever contingencies in the contract to be removed according to contract, so you will need to complete the necessary inspections in the allotted timeframe.

The appraisal contingency is included to protect the buyer should the home not appraise for the agreed upon purchase price. If the appraisal comes in low, the buyer has the ability to renegotiate or walk away, without this contingency the buyer still has an obligation to purchase the home for the agreed upon price.

Inspection contingency is included so the buyer can have a professional and licensed home inspector look over the home to make sure the home is in an acceptable condition. If the home inspector found something, the buyer has the ability to withdraw from contract of negotiate a remedy.

Wood destroying pest contingency is included for the buyer to have a licensed pest inspector inspect the home for infestation and damage.  Should the inspector discover something the buyer has the opportunity for remedy.

Home loan contingency is typically in place to offer the buyer an exit from contract if they are unable to secure the home loan, or specific home loan terms. The home loan contingency requirement often times is a blanket contingency because lender approval will be determined by successful review of the inspections mentioned above. As a general rule, if you include the inspection in the contract, the lender will want to see the report.

The home loan contingency will have its own expiration date, and you will want to have everything in place relating to loan approval before removing this contingency, which typically means being clear for and having final loan paperwork ordered.

While not all of these contingencies are found in every contract spelled out, the buyers right to inspect and the length of time he has to do so typically is. Performing all the necessary inspections well before this time period expiring is important.

If your loan consultant is familiar with these contractual obligations, is prudent with their work, and the borrower is cooperating and getting the loan officer the documentation he or she needs, meeting these contract deadlines and closing escrow on time should be a simple matter of good business.

If you would like to discuss you particular situation we welcome a phone call... 

831.325.6959 



California Bureau of Real Estate License 01792241
NMLS License 523235


1649 Calavo Rd. Fallbrook, CA 92028
831.325.6959 Phone
866.321.5467 Fax
email@culturemortgage.com

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