Asked and AnsweredMy bank issued a loan commitment, but then withdrew its underwriting because private mortgage insurance was not available. Will I have a problem canceling the contract and getting my deposit back?
You might have a grumpy seller, but you should not have a problem. Due to the chaos in the residential lending market at the moment, the issuance of a loan commitment does not guaranty that the bank will actually fund the loan. Commitments often contain conditions that the borrower will be unable to satisfy, such as requiring the co-op or condo to maintain certain insurance coverages. If the conditions cannot be satisfied and removed, the bank will not go forward with the financing. In addition, when a commitment includes a condition that the borrower must qualify for “private mortgage insurance” or “PMI”, the loan has to be underwritten a second time by the party issuing the PMI coverage. If the bank is unable to obtain the PMI coverage, the underwriting will usually be withdrawn, even if a loan commitment has been issued. For this reason, and to avoid any possible dispute over whether a loan commitment has been issued, it is essential that contracts contain a “funding contingency” in addition to the “mortgage contingency”, particularly where the borrower is required to obtain PMI. In your case, it will be difficult for the seller to assert that a commitment was issued if an integral component of the Bank’s underwriting , that is, securing the financing with PMI, is unavailable. That being said, folks can be unpredictable and lawsuits with no legal merit can go on and on, at significant cost to both parties.