Asked and AnsweredA condo buyer has a mortgage contingency, but the closing will not take place for six months as the seller has a tenant in the apartment. When should the purchaser apply for financing?
First of all, the purchaser’s obligation to apply for financing is dictated by the terms of the contract of sale. When a co-op or condo contract has a mortgage contingency, the purchaser is usually required to apply for financing within seven days after the fully-executed contract is returned. In this case, where the closing will not take place for an extended period of time, there is a logistical problem as to when the purchaser should apply for a loan. Since most banks will not issue a commitment letter that lasts for more than ninety days, if the purchaser is obligated to apply for financing too soon, the commitment letter will expire and the loan may have to be underwritten all over again. This re-application process could impact the purchaser’s credit rating. On the other hand, the seller wants to know that his or her purchaser is able to obtain financing, so having the purchaser apply for financing soon after the contract is returned is in the seller’s best interests. In this situation, however, the parties should agree that the purchaser will not be obligated to apply for financing until ninety days prior to the scheduled closing date. Even that time frame is pushing the envelope as closing dates are almost always “on or about” dates. When the seller requires a delayed closing date, an all cash purchaser is probably the best bet. As all cash purchasers are few and far between these days, the seller should allow an extended period of time for the purchaser to obtain a loan commitment and keep fingers crossed until the loan commitment letter finally shows up.