Hello again to all Silicon Valley Home Buyers:
From my previous blog
, you are now familiar with the 3 key deadlines and provisions of the California Residential Purchase Agreement.
I would like to address in the following blog the specific provisions which apply if you finance your home purchase with a loan.
The Loan Application Deadline
According to the California Residential Purchase Agreement “within 7 days/or more after the Date of Acceptance, the Buyer shall deliver to the Seller a letter from the lender or loan broker stating that […] he/she is prequalified or pre-approved for a loan”. In practice, home buyers submit this document within 7 to 10 days.
In most cases, before even engaging with a Realtor, most home buyers are either pre-approved or pre-qualified. Please note that the Loan Application must be in writing.
A verbal approval or an email from a loan officer is not enough. Typically, the pre-approval letter is generated by your loan officer after review of your financial status.
The distinction between pre-qualification and pre-approval is one of consequence. A pre-qualification letter is a simple a letter of intention and does not mean that you will obtain the loan.
- The pre-qualification letter is based solely on what the potential buyer discloses orally to the loan officer about his/her earnings, credit score and total assets.
- The pre-approval letter states that your loan request has already been approved and requires the borrower to provide documentation of his/her income and assets (e.g. wage statements, the latest 1099 form available, recent pay stubs, bank statements, etc).
Needless to say that, given the current status of the real estate market in Silicon Valley, a pre-qualified buyer does not stand a chance to get his/her offer accepted.
The Loan Contingency
According to the California Residential Purchase Agreement, “the Buyer has 17 days or more after acceptance to remove the loan contingency in writing or cancel the agreement”. In other words, the buyer has to confirm to the seller that the loan will be funded by the lender”.
In practice, this contingency is lifted by the Realtor within 10-17 days.
The Appraisal Contingency
According to the California Residential Purchase Agreement, ”the buyer has 17 days/or more after acceptance to remove the appraisal contingency or cancel the contract”.
In layman’s terms, the appraiser sent by your lender and paid by you has to confirm that the value of the property is at least equal or higher to the purchase price you offer.
If the appraiser thinks that you are bidding way over the asking price, be prepared to come up with the difference (or in the worst case bail out of the transaction) as the lender will only finance up to the appraised value of the property.
© Sophia Delacotte CDPE, SFR, CHS
San Jose Realtor
Cell: (408) 717-2575