Real Estate
Mortgage Contingency by Ann Zeilingold A realtor told me last week that he would be presenting an offer without a mortgage contingency. I asked him, “Why?” He told me that in order to get an offer accepted in today’s times, it has to be as strong as possible. He also said since his client was putting so much down, at 60%, the buyer for sure would get a mortgage — and therefore it was no risk at all. He was not asking my professional opinion; he was simply stating a fact, as he saw it. What is “mortgage contingency,” and is it something that a prospective buyer should waive? And if yes, under what circumstances? A mortgage contingency is the clause in a real estate contract that states that if the purchaser does not get a mortgage commitment by a specific time that is agreed upon and stated in the contract of sale, then the seller will refund the buyer’s initial down payment and the deal will be terminated. Waiving the mortgage contingency basically says that the buyer cannot get back his down payment that was given at contract signing if he does not get the mortgage financing that he needs in order to purchase the home; basically the down payment is NOT protected under the contract of sale. I posed this question to veteran real estate attorney, Isaac Scheiner from Monsey, NY. He said, “While waiving a mortgage contingency is a wonderful negotiating tool, it is only for the right buyer. I always ask my client if they have a backup plan, which can include another source of funds (even if not ideal), or perhaps if the buyer would be able to reasonably quickly find a cash buyer to take his place and close.” I also asked this question to Tirtza Beer, #1 real estate salesperson in Rockland in 2015, according to the Greater Hudson Value MLS. She said, “It’s not a good idea to waive it, but in emergency situations — such as if the buyers really want a specific house or it’s a great deal, there are other buyers vying for the same home, especially other cash buyers, and this is the only way to get the seller to accept the offer — but even then,
As a mortgage professional, I would say it is never responsible to waive the mortgage contingency, unless there is a Plan B or the client is willing to risk their down payment.
only if the mortgage broker says this is responsible!” As a mortgage professional, I would say it is never responsible, unless there is a Plan B or the client is willing to risk their down payment. A mortgage is complex, and something can come up unexpectedly. Some examples of the unexpected is: The borrower loses his job; a derogatory on the credit comes up and the loan is no longer approvable; the taxes are higher than expected and interest rates go up and suddenly the Debt to Income ratio doesn’t work... There are other situations that can arise, and waiving the mortgage contingency can be dangerous for a buyer. It is not the norm in the real estate world to present offers that waive the mortgage contingencies, but it is a phenomenon that I am seeing more and more as buyers become desperate looking for homes and they lose them when they are negotiating against All Cash offers. Sellers are in the driver’s seat and can make demands when they have multiple offers. Presenting a strong offer is key, but know the ramifications in the event that things don’t go as planned.
Ann Zeilingold, NMLS # 41850 is the Vice President and Branch Manager of FM Home Loans in Pomona, NY. FM Home Loans is a direct lender, licensed in NY, NJ, FL and CT. She has been originating residential mortgages for 27 years. She has recently published a book, which is a must-read for any prospective homebuyer, The Homebuyer’s Companion. Ann grew up in Monsey, and she currently lives in Wesley Hills with her husband and children.
Find Ann’s real estate column weekly in The Monsey View.
Ann Zeilingold Vice President
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FM Home Loans 1609 Route 202 Pomona, NY 10970
Office: 845-354-9700 Mobile: 914-260-9000 ann@annzeilingold.com