Approach of “No Finance Contingency” in RE Purchase Offer

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Kookaburra
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Approach of “No Finance Contingency” in RE Purchase Offer

Post by Kookaburra »

Bogleheads

In this competitive RE climate, “no contingency” offers are often needed to win. However, if/when I make an offer, I will need a mortgage. So I’m trying to figure out the financing contingency aspect - specifically, if I have no contingencies (ugh), how to ensure that the lack of a finance contingency doesn’t bite me in the arse. I am pre-approved and well qualified, so that shouldn’t be an issue. My concern is that if the lender can’t close on time for whatever reason, that I would lose my earnest deposit (which naturally I really want to avoid, as that would be a significant $ amount).

How should I approach this?

ETA: if I don’t have a finance contingency, but the mortgage company still needs to appraise, how is this dealt with? Won’t the seller be surprised?


Side Note: I plan to put a significant down payment and cover any appraisal shortfall, so I’m not concerned about that.)
Last edited by Kookaburra on Mon Nov 29, 2021 6:54 pm, edited 1 time in total.
Topic Author
Kookaburra
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Joined: Thu Apr 02, 2020 11:14 pm

Re: Approach of “No Finance Contingency” in RE Purchase Offer

Post by Kookaburra »

Bumping for help
Mike Scott
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Re: Approach of “No Finance Contingency” in RE Purchase Offer

Post by Mike Scott »

Having a no appraisal contingency makes more sense than a no finance contingency unless you really do have the cash back up if the mortgage preapproval falls through for any reason. I guess it depends on where and how much risk you want to take on making an offer.
fortunefavored
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Re: Approach of “No Finance Contingency” in RE Purchase Offer

Post by fortunefavored »

I am not sure what you're asking.. no contingency means you take on the risk. You've already got your pre-approval and should be fine there. Appraisal contingency may be more risky because you have to make up the difference out of pocket - if the house appraises for $50K under what the bank will loan, you need to come up with $50K extra to close.
drk
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Re: Approach of “No Finance Contingency” in RE Purchase Offer

Post by drk »

Kookaburra wrote: Wed Nov 24, 2021 3:49 pm My concern is that if the lender can’t close on time for whatever reason, that I would lose my earnest deposit (which naturally I really want to avoid, as that would be a significant $ amount).
Not necessarily. In general, sellers don't want to put the house back on the market because then it has The Stink. If you're reasonable and communicative, then a seller is likely to work with you to delay closing if it's still clear that you're going to close (your side note goes to this point). Maybe they extract a pound of flesh by having you release the EMD early, but oh well.
Kookaburra wrote: Wed Nov 24, 2021 3:49 pm ETA: if I don’t have a finance contingency, but the mortgage company still needs to appraise, how is this dealt with? Won’t the seller be surprised?
All you're doing is *not* reserving the right to cancel the contract and pull back your EMD due to a failure to secure financing. You're still allowed to seek financing.

BTW, I would recommend talking to your lender and your agent about these concerns. Your lender will be key to hitting your committed closing date, and your agent will be able to advise on strategy.
Last edited by drk on Mon Nov 29, 2021 7:21 pm, edited 1 time in total.
random_walker_77
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Re: Approach of “No Finance Contingency” in RE Purchase Offer

Post by random_walker_77 »

There are some startups offering faster/alternate underwriting to allow their customers to make "all cash" offers on homes. Might be worth investigating:

https://www.policygenius.com/mortgages/ ... -startups/
https://www.fastcompany.com/90626724/th ... n-the-bank
https://techcrunch.com/2021/05/27/homew ... -on-homes/
tim1999
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Re: Approach of “No Finance Contingency” in RE Purchase Offer

Post by tim1999 »

If you are putting 20% down and the loan will end up being Fannie Mae conforming/backed, your mortgage broker may be able to get an appraisal waiver up front once you are ready to make an offer. Basically they put the address and price in the computer and it tells them whether Fannie Mae will waive the appraisal or not. If they do, you can write an offer without an appraisal contingency and save yourself the $500 or so that you would have spent on an appraisal. My friend did this just a few months ago.
https://singlefamily.fanniemae.com/media/9456/display
Golf maniac
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Re: Approach of “No Finance Contingency” in RE Purchase Offer

Post by Golf maniac »

If you make a no finance contingency just make sure it is spelled out in the contract what happens if you delay closing. Typically some financial impact if closing is delayed. Typically the contracts I have seen do not take deposit and cancel the deal. I would just do a 45 day closing to make sure you can meet the closing date.
VoiceOfReason
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Re: Approach of “No Finance Contingency” in RE Purchase Offer

Post by VoiceOfReason »

“Time is of the essence”

In almost all situations, to collect damages for failure to perform on any date in a contract it must say “time is of the essence”. In addition to actually proving damages, which becomes easier when this clause is explicitly included in the contract. Google the concept.

My experience has been that most standard real estate contracts do not state that. The dates used are simply marks on a calendar and all parties must make good faith efforts to perform by those dates.

If you don’t have a finance or appraisal contingency but cannot or will not perform closing by requested date bc you are pursuing financing, nothing happens as long as you are acting in good faith to close. Except if you have significant, real delays and are unable to perform. For it to be clean, the seller should spell out time is of the essence and even damages for delays by timeline.
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