Mortgage Approval Without Real Estate Purchase Contract

This BLOG On Mortgage Approval Without Real Estate Purchase Contract Was UPDATED On August 21, 2017

The first step in buying a new home is getting qualified and pre-approved by a loan officer.

  • Many lenders now offer Mortgage Approval Without Real Estate Purchase Contract.
  • Getting Mortgage Approval Without Real Estate Purchase Contract is called TBD Underwrite.
  • The lender will process the mortgage loan applicant and do a full credit/income underwrite and the only thing that is not underwritten is the subject property.
  • Once an underwriter gives a conditional Mortgage Approval Without Real Estate Purchase Contract, the only condition that is missing is the property.
  • A borrower with a conditional Mortgage Approval Without Real Estate Purchase Contract is a much stronger home buyer than one that is just pre-qualified.

Buying Home After TBD Underwrite Approval

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, home buyers 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.
  • If borrowers cannot provide conditions on a conditional approval, the mortgage lender may deny the loan.
  • There are instances where home buyers can lose their jobs during the mortgage process which will either delay closings or kill the deal.
  • What a mortgage contingency provides is that the real estate purchase 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 real estate purchase contract if they are not able to obtain a residential mortgage loan commitment.

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 Mortgage Approval Without Real Estate Purchase Contract, the home buyer is already conditionally approved contingent upon property appraisal and clear title.
  • Depending on how the real estate purchase contract is written, home buyers without Mortgage Approval Without Real Estate Purchase Contract can lose your earnest money deposit once their mortgage contingency period has expired  fail to close on their home.  
  • Mortgage lender will require the real estate purchase contract and will monitor mortgage contingency date for borrowers without Mortgage Approval Without Real Estate Purchase Contract.
  • Buyers need to ask sellers for an extension with delays getting obtaining a formal mortgage commitment.

The greatest benefits of Mortgage Approval Without Real Estate Purchase Contract is that the borrower is already conditionally approved for a mortgage.

Real Estate Purchase Contract Due Diligence Period

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 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.

Home Inspections

A home inspection is strongly recommended for all home buyers and should be part of 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 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, home buyers 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.

Termite Inspection

Depending on which area the home is, a termite inspection may be recommended.

  • The mortgage lender might also require a termite inspection if the appraiser notates on appraisal report that there are signs of termites. 
  • FHA mortgage lending guidelines state that a termite inspection is required only if there is evidence of active infestation or if it is required by either the local, county, or state building code departments, or if it is customary for the region, or 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 Sellers Concession Towards Closing Costs

Have the realtor request a sellers concession towards closing costs.

  • FHA loans allow up to a maximum of 6% sellers concessions towards a buyers closing costs.
  • Closing costs includes 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. 
  • Do not ask for too much sellers concessions because overages in sellers concessions goes back to the seller and it does not come to the buyer in any other form as a cash back.
  • Home Buyers cannot use sellers concessions towards your down payment. 
  • Sellers 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 a 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.
  • A true pre-approval is issued by a mortgage underwriter after the underwriter has reviewed the borrower’s application, credit, credit scores, credit history, income, debts, assets, public records, and all documentation.
  • The Gustan Cho Team at USA Mortgage will only issue pre-approvals after the mortgage underwriter has signed off on it. 

Home Buyers needing a Mortgage Approval Without Real Estate Purchase Contract (TBD Underwrite) with a direct lender with no lender overlays, please contact The Gustan Cho Team at USA Mortgage at 1-800-900-8569 or text us at 262-716-8151 for faster response or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

Related> Real Estate Purchase Contracts

Related> Canceling A Real Estate Purchase Contract

Related> Home Purchase With No Pre-Approval

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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