Mortgage Contingency Conditions In the Real Estate Contract

It is really important to make sure that your real estate attorney explains to you the mortgage contingency provision in the real estate contract. Many contracts tend to have generic provisions but there is no reason why your attorney cannot amend the provision and tailor it to suit your particular situation. When negotiating the mortgage contingency provision of the contract, a mortgage contingency amount of eighty percent (80%) of the purchase price may be requested, even if the client may subsequently apply for or accept a smaller loan. A forty five (45) to sixty (60) day contingency period in which to get a firm mortgage commitment should be sought, remembering that loan application processing in some banks can be very slow. However, a shorter thirty (30) to forty five (45) day mortgage contingency period would be acceptable in the contract if the sellers' attorney agrees to insert the provision assuring the granting of a reasonable extension of time if the loan commitment has not been secured by the agreed contingency date. You don't want to be left in a situation where the seller finds another buyer or decides to take the house off the market and leave you high and dry. Even though he may not give you an argument in returning your deposit you have already expended money and time in securing a mortgage and in making plans to move forward with the purchase of the particular residential property, commercial property, co-op or condominium that you have set your dreams on.

There are a lot of different standard real estate contracts floating around out there and different attorneys use different versions of a contract. I have seen many contracts where there are no mortgage contingencies in the printed form but there is a specific tailored rider annexed to the original contract. It is important that that tailored rider is studied in detail and that your attorney explains it to you in detail. In many contracts the mortgage contingency clause is actually in the standard contract and if you read the paragraph in detail you see that you are committing to purchase the house as soon as you have received a "written commitment" without the word "firm," "unconditional" or "fundable". Now we all know that many lenders issue written commitments BUT the written commitment isn't worth the paper its written on if it is followed by a long detailed page of conditions that you have to meet before you close on the loan. I personally am very careful to make sure that my client is not placed in a position where he has to go forward and purchase the property as an all cash transaction because the mortgage contingency clause isn't worth anything.

Of course the purchaser can always file an action in court claiming that he is entitled to his deposit back if the mortgage is not funded by the financial institution however, I would much prefer that my client is not put into this expensive nerve-racking situation.