In this blog, we will be covering full TBD mortgage approval prior to real estate purchase contract for homebuyers. The first step in buying a new home is getting qualified and pre-approved by a loan officer. Gustan Cho Associates now offers full TBD mortgage approval prior to purchase contract. Getting full TBD mortgage approval prior to purchase contract is called TBD Underwrite Pre-Approval. In the following paragraphs of this guide, we will be going over the full TBD mortgage approval prior to purchase contract.
How Does Full TBD Mortgage Approval Loan Process Work?
The lender will process the mortgage loan applicant. Underwriters will do a full credit/income underwrite and the only thing that is not underwritten is the subject property. Once an underwriter gives a full TBD mortgage approval prior to purchase contract, the only condition that is missing is the property.
A borrower with a conditional full TBD mortgage approval prior to purchase contract is a much stronger home buyer than one that is just pre-qualified. The team at Gustan Cho Associates issues full TBD mortgage approval prior to purchase contract for pre-approvals.
Buying Home After Full TBD Mortgage Approval Prior To Purchase Contract
Once a borrower has a solid TBD Underwrite Approval, the only conditions that is missing is the property. The property needs to be underwritten. Appraisal and title needs to be ordered. Before signing a real estate purchase contract, homebuyers need to think things through so that nothing comes back to bite them at the end and the earnest money is not in jeopardy. There are many things buyers need to consider when putting in an offer on a new home. Mortgage contingency, home inspection contingency, appraisal contingency, or items needing repairs should all be on the purchase contract.
Mortgage Contingency on Real Estate Purchase Contract
All contingencies should be stated on the real estate purchase contract. A mortgage loan contingency is probably the single most important item you need to address in the real estate purchase contract. Just because home buyers have a pre-approval does not guarantee that mortgage loan is going to go through.
What Does Approved For a Mortgage But With Conditions Mean?
If borrowers cannot provide conditions on conditional approval, the mortgage lender may deny the loan. There are instances where homebuyers can lose their jobs during the mortgage process. If a borrower lose their jobs during the mortgage process, this will either delay closings or kill the deal.
How Does a Mortgage Contingency Work?
Mortgage contingencies in real estate purchase contract protects homebuyers in the event they do not get approved for a mortgage. Contingencies on real estate purchase transactions needs to be written in the executed real estate contract. Make sure you state any and all contingencies in the real estate purchase contract before signing the contract.
Contingencies To Include In Your Home Purchase Contract
The contract is only valid if the borrowers are able to secure a mortgage commitment within a certain amount of time. The transaction is only valid dependent on the home buyer getting a mortgage approval. It will enable buyers to cancel a real estate purchase contract if the homebuyers are not able to obtain a residential mortgage loan commitment. This is why mortgage contingencies is one of the most important contingencies when signing the real estate purchase contract.
Contingencies On Real Estate Purchase Contract
The normal mortgage contingency period is between 14 and 25 days from the real estate purchase contract date. The earnest money you deposit with real estate purchase contract will be in jeopardy once the mortgage commitment period has expired. However, with a TBD mortgage approval prior to purchase contract, the home buyer is already conditionally approved contingent upon property appraisal and clear title.
Who Keeps Earnest Money If Deal Falls Through?
Depending on how the real estate purchase contract is written, home buyers without TBD mortgage approval prior to purchase contract can lose your earnest money deposit once their mortgage contingency period has expired fail to close on their home. The lender will require the real estate purchase contract.
Who Monitors Contingency Date During The Mortgage Process
Lenders will monitor mortgage contingency date for borrowers without TBD mortgage approval prior to purchase contract. Buyers need to ask sellers for an extension with delays getting obtaining a formal mortgage commitment. The greatest benefit of TBD mortgage approval prior to purchase contract is that the borrower is already conditionally approved for a mortgage.
Real Estate Purchase Contract Due Diligence Period
The real estate purchase contract will contain a due diligence period where buyers have a certain amount of time for due diligence on the property. During this period, the home buyer will be working on the mortgage loan approval, order the home appraisal, order property inspection, order well and septic inspections, and order termite inspection reports.
Most real estate purchase contracts are drawn up for 30 to 45 day periods. Sometimes it may be as long as 60 days or longer especially homes that are being purchased by a home builder, short sale, and not yet built or currently under construction.
What Things Are Looked At During Home Inspections
A home inspection is strongly recommended for all home buyers and should be part of the real estate purchase contract. The purchase contract is only valid if the house passes a third-party home inspection. There probably will be a home inspection period in the contract. A home inspector will inspect the home and get buyers a report. If buyers do not utilize a home inspector during that period, the home inspection contingency will expire.
A home inspector will reveal any major flaws with the home. If there are the extensive foundation, structural, and/or mechanical defects on the subject property, it might be wise to pass on the home and move on. In the event, if there are many flaws on the home inspection report, homebuyers can negotiate the subject items with the seller. Monetary credit or repairs prior to closing or reduction of the original purchase price can be part of the negotiation terms.
Do Mortgage Lenders Require a Termite Inspection?
Depending on which area the home is, a termite inspection may be recommended. The lender might also require a termite inspection. If the appraiser notates on appraisal report that there are signs of termites, the lender will require a termite inspection. HUD mortgage agency lending guidelines state that a termite inspection is required only if there is evidence of active infestation.
When Is a Termite Inspection Required By Lenders on a Home Purchase
Another reason a termite inspection is required is if either the local, county, or state building code departments mandate it as part of their building code for the region or area. It is customary for termite inspection to be required at the mortgage lender’s discretion. In the event, if there are termites present at the subject property. it is up to both the seller and buyer to negotiate who will correct the damage caused by termites and the termite abatement program.
Request Seller Concession Towards Closing Costs
Have the realtor request a seller’s concession towards closing costs. FHA loans allow up to a maximum of 6% sellers concessions towards a buyers closing costs. Closing costs include prepaid items such as tax escrows, insurance escrows, title charges, recording fees, transfer stamps, and other closing costs that the buyer would otherwise have to come up with besides the down payment. Seller concessions can be used to buy down mortgage rates with discount points.
How Does Seller Concessions Work?
Do not ask for too much sellers concessions. Seller concessions can only be used for closing costs and prepaid. Seller concessions can’t be used for the down payment. Seller credit cannot be used as cash proceeds for repairs after closing. If there are left over funds with seller concessions after paying closing costs, overages in sellers concessions go back to the seller.
Seller Concessions Exceeding Closing Costs
Seller concessions exceeding closing costs cannot go to the homebuyer in any form of a cash kickback. It is illegal to give the homebuyer seller concessions that exceed closing costs in cash. Seller concession overages does not go to the buyer. Any overages in seller concessions can’t be credited to the borrower in any other form because it is considered as a kickback, a RESPA violation. Again, homebuyers cannot use seller concessions towards your down payment.
How Much Can You Ask For Seller Concessions
Seller concessions towards buyers closing costs need to be stated and disclosed on the real estate purchase contract. The maximum amount 3% sellers concession is allowed on owner occupant conventional and jumbo loans. 2% sellers concessions on investment property conventional loans. 4% sellers concessions on VA Loans. 6% sellers concessions on USDA loans. 6% sellers concessions on NON-QM and Bank Statement Mortgage Loans for self-employed borrowers.
Why Do We Close 100% of Our Pre-Approvals & Other Lenders Don’t?
There is a big difference between pre-qualification and pre-approval. Most lenders consider a pre-qualification a pre-approval and issue it within the hour of reviewing a mortgage applicant’s file. Gustan Cho Associates uses a full TBD mortgage approval as pre-approvals for all of our clients.
A true pre-approval is issued by a mortgage underwriter after the underwriter has reviewed the borrower’s loan application, tri-merger credit report, income, assets, liabilities, DU AUS findings is called a full TBD mortgage approval. The following docs are reviewed by the mortgage loan underwriter before a full TBD mortgage approval pre-approval is issued:
- application
- credit
- credit scores
- credit history
- income
- debts
- assets
- public records
- all documentation
Gustan Cho Associates will only issue pre-approvals after the mortgage underwriter has signed off on it. Home Buyers needing a TBD mortgage approval prior to purchase contract (TBD Underwrite) with a direct lender with no lender overlays, please contact us at Gustan Cho Associates at 800-900-8569 or text us for faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.
This guide on TBD mortgage approval prior to purchase contract was updated on October 2nd, 2022.
