Of the many things that can trip you up when buying a home with mortgage financing, writing offers is one of the most common.
When you’re finally writing a home purchase offer (also called a purchase contract) after a long home search process, it’s easy to forget about your lender in the excitement. However, your lender must be involved because of these five ways purchase contracts impact the lending process.
1. The purchase offer must match loan documents
Names in the “buyer” section of your offer must match the names on the loan application exactly. This small but critical detail can delay or kill a deal.
For example, if your significant other is out of town when you’re writing the offer, your real estate agent may advise you to write it solely under your name. But if your loan application has both names, the lender will require you to add that missing person and have everyone, including the seller, re-sign the contract.
Or worse, if you use an entity like a trust or a business as the buyer, you’ll be forced to change the contract to human buyers that match the loan application. Mortgage loans must be made to humans, and you can transfer to entities post-close if that’s your goal.
2. The lender must approve home inspections you request
Your offer contract will ask you to select which home inspections you want. Appraisal inspections are required by lenders. Optional inspections include contractor, structural, engineering and pest.
Not all lenders will ask to review and approve every optional inspection report, but they study contracts and other property documentation (like listings on Zillow and local MLS sites) to look for red flags that may cause them to request a certain inspection report.
For example, if a public listing noted that a seller had already obtained a pest report and it contained $5,000 worth of repairs, the lender will require that pest report for review, and they’ll also require that the repairs are completed prior to approving and closing your loan, which can create timing issues. Mapping this out with your real estate agent and lender before you submit your offer enables you to execute the rest of the process with ease.
3. The lender must be able to perform on your closing timeline
Your purchase contract must state how fast you can close. In low-inventory markets where sellers have the upper hand, buyers who can close fast get the most attention.
You need your lender’s input on closing timing. They’ll tell you how long it will take to appraise the property, review title history, approve the condo project (if applicable), and finish approving you, if they haven’t already. All you have to do is tell your real estate agent to get the timing from your lender.
4. The lender must be able to perform on your due diligence timeline
Another critical point in contract timing is requesting how many days you need for each stage of due diligence, like completing your appraisal, securing your financing, approving seller disclosures, and completing inspections.
These “contingencies” protect you by enabling you to break the contract until you’ve released them. Just like with the closing timeline, sellers respond well to speed, so make sure your real estate agent is discussing timing of each contingency with your lender before you write and present the contract.
5. The lender must approve credits you ask for
Often real estate agents will advise buyers to seek a credit from the seller at closing in lieu of reducing a purchase price. A seller credit enables buyers to negotiate better terms for themselves while also conserving cash because the credit will be used to offset closing costs.
You can ask for credits in the beginning, but often they’re requested after an inspection reveals a minor property issue such as scuffed walls or damaged window screens.
In these cases, your lender will require a contract addendum (signed by the buyer and seller) to show the credits, which the lender must approve before having the appraiser amend the appraisal report to reflect the credit. These tasks can take two to six days for a lender to process, so you must keep the lender in the loop on all credits from the seller, real estate agents, or any other third parties.