Should we sign without a FUNDING contingency

Listen to your lawyer. Underwriting standars are very tight. Don't be foolish - that contingency clause is standard and there for your protection.

Don't do it if you can't fund it any other way without the loan.

With a contingency, you get the deposit back if loan rejected. Without, no, if you cannot close with other sources of funds.

Agree with Bernie123 and anything can go wrong with financing. What if your spouse or your income changes for whatever reason? This actually was true in my case. My co-borrower for my condo had a 1/3 cut in her salary towards the end of the financing application and approval process. It was just another week and the employer would have verified a different amount for the income and our financing would not have gone through, given that we needed the co-borrower's original income as well as mine.

And, yes, you stand to lose the 10% deposit, which is likely to be a big sum to lose to get nothing. That will happen if you do not go through with the purchase even if it is because of lack of financing. You are on your own without the financing contingency (as certain as financing may seem to you right now)!!!

Ask yourself, what will you do if for some reason you don't get the mortgage. Will you have a way to close without it and if not, can you afford to lose the 10%. As Bernie said, the banks have gotten very tight with approvals and anything can happen. So, assume the worse case and make your decision based on the answer.

Things have tightened considerably over the past year. Bank approval of a building can disappear is a blink. But, I've never heard of a funding contingency. Usually a financing contingency covers your ability to get a loan, whether it's from your financial issues or the bank's problems with the building.

Even before the financial crisis, I would never do a purchase with no financing contingency. Fannie Mae could tighten their guidelines at a moments notice.

Ellen Silverman
Mortgage Broker since 1990
Esfunding.instantlender .com

"the sponsor will NOT budge on a funding contingency"

Have they explained why? If not or they won't say, it suggests funding may have been an issue on another deal or deals.

Their intransigence seems suspect.

You should not do business with people that are unreasonable and unfair. Also,
your sponsor-seller is very familiar with the financability of the units he is
offering for sale. His unwillingness to consent to a financing contingency suggests
that he believes based on his knowledge that you might not be able to get a loan.

Pass, run or punt.

Seems odd they accepted your offer and moved to the contract negotiation stage without knowing/implicitly acknowledging your mortgage contingency.

OP: I think I can some up the board's advice -- PLEASE, PLEASE, PLEASE do not make the mistake of proceeding without a financing contingeny clause. You'd be asking for a 10% of X loss.

It sounds like the sponsor is afraid that the *building* has some problem that might affect the bank's decision. And that's something that he knows a lot more about than you do. *Demand* the contingency.

I know I'm just repeating what's above, but think about it in these terms: The contingency they resist agreeing to is the contingency upon which they have direct influence? They can accept the risks outside their own control -- that you don't qualify for financing, or that the appraisal comes in low -- but not the risk that their building is disapproved?

Also, my understanding of funding contingency language is that it should also cover any other reason your bank refuses to show up with the big cashier's check -- including failure of the bank, sale of the bank, changes to Fannie Mae guidelines, crashing market for mortgage securities, etc.

Start looking for something else in the area right this minute; this is NOT the only apartment out there. The sponsor is in a better position to take a loss than you & he obviously feels there will be a problem if he refuses this normal contingency clause.

I can think of a couple valid reasons why the sponsor won't accept the funding contingency, but don't know if they apply to your case. It sounds like this is a new development and new devs typically (I believe) have a preferred lender list of banks that have vetted the building's financials and will lend without owner occupancy requirements. If you use one of these banks, you do not need a funding contingency. You can always choose a different lender, but the sponsor will not thank you for it by giving you this contingency. Another possible reason is that the sponsor has been selling for a year plus (you said your family member bought a year ago) and at this point, they may be over 50% sold, which is the usual owner occupancy requirement and also shows that at least some banks are willing to finance; the sponsor could be concerned that you choose the one mortgage lender that is NOT willing.

Citi is a big lender, have they not financed any prior purchases?? Because if they have, the funding contingency should not be an issue with yours unless something has materially changed with the building. My guess would be that the loan officer gave you an off the cuff answer, but if they made prior loans in the building, that 10% is probably more like 0%. If you are not beholden to Citi, I would also suggest you speak to your family member's mortgage banker and to preferred lenders, if any, if you haven't already, I suspect they will assuage your funding contingency concerns.

As a rule ... a sophisticated businessman will agree to any contract term which he/she
knows will in practice cost nothing, especially when it makes getting a deal done.

If they refuse to, it is only reasonable and realistic to assume that their refusal mani-
fests an inner belief that agreeing to such contract term could cost them money, which in
your case means he/she thinks you might have a problem getting financing.

Unless you have an inner desire to become prematurely bald, you should paas. In fact, if
you refuse to contract w/o the clause your seller might relent and agree to its inclusion.

If you have the funds to buy it without a mortgage you can explore further to consider and take in everyone's comments.
If you do not, you CANNOT risk going into contract without a contingency.
I have spent many years dealing with many banks and everything is always great until time for setting a closing.
You CANNOT rely on your Citi loan officer for any assurances ONLY the underwriter can give.
If you can get the underwriter to make such a promise, in writing, you know what, you CAN go ahead without the clause.
You will not get an underwriter to do so, even if he/she is your first cousin.

Pre Lehman during the bubble,lower manhattan was believe it or not a strong enough market that the norm was no contingency clause. THough given what's gone on the past couple years with banks backing out and failed closings, I can understand a seller asking no clause.

If you have the funds to buy it without a mortgage you can explore further to consider and take in everyone's comments.
If you do not, you CANNOT risk going into contract without a contingency.
I have spent many years dealing with many banks and everything is always great until time for setting a closing.
You CANNOT rely on your Citi loan officer for any assurances ONLY the underwriter can give.
If you can get the underwriter to make such a promise, in writing, you know what, you CAN go ahead without the clause.
You will not get an underwriter to do so, even if he/she is your first cousin.

Pre Lehman during the bubble,lower manhattan was believe it or not a strong enough market that the norm was no contingency clause. THough given what's gone on the past couple years with banks backing out and failed closings, I can understand a seller asking no clause.

I would agree to no financing contingency on my ability to get financing because I know my finances, which are in my control; however, I would want a financing contingency on the building because a building that was approved last month may not be approved next month if the financial situation changes in the building, something over which I have no control.

"the sponsor will NOT budge on a funding contingency"

i'd NEVER agree to that. sounds like they are showing their true colors. don't walk away, just RUN.

It appears that some people on this chain are mistaking a "Financing Contingency" with a "Funding Contingency". There is a clear difference between the two. The former protects you in the event you are unable to get a Loan Commitment Letter. The latter protects you in the event that the lender (who has already issued you a commitment letter), decides not to fund the loan at or prior to closing.

Given the post 2008 lender/underwriter requirement, in my opinion, I would not advise signing a contract without a tight funding clause.

It's hard to understand why you would hire a lawyer and then go to an internet chat board to ask if your lawyer's advice is correct. Since you asked for advice -- listen to your lawyer. Don't go shopping for other opinions just because you fell in love with the apartment. And, final piece of advice, never fall so in love with a piece of property that you can't walk away from it. At least not until after you've closed.

The sponsor could have created conditions which will make it difficult or impossible for you to get a loan, such as not paying maintenance on units, not getting a final C of O, or by renting out enough units that the building cannot qualify for a Fannie Mae loan.

Oops just reread original post and saw that Citi has already approved the financials. If I were you, I would reach out to the sponsor as it may be his LAWYER and not him who is not budging. I actually was in a similar situation as you and was able to get a provision that the sponsor's attorney refused to give us simply by explaining our position to the sponsor's sales rep who passed it up through the food chain. You may get the contingency outright, or maybe a compromised version, or at the least, some clarity on the sponsor's position. Attorneys can be roadblocks (surprise, surprise) and sometimes it's better to go around them.

Forgot to add: I would not be surprised if given the low inventory, sponsors, at least of desirable buildings, are not giving the usual contingencies. Assuming you are only looking at high demand buildings, do not be surprised if after turning down this one, you are in the same boat with a sponsor refusing to give you a standard term at the next one. My friend recently signed a contract with a sponsor who would not give any financing/funding/appraisal contingency nor an outside closing date and the building appears to be selling well. I am certainly not encouraging you to sign a contract you are not comfortable with, if the funding contingency is that important to you, then by all means, stick to your guns.

It appears that some people on this chain are mistaking a "Financing Contingency" with a "Funding Contingency". There is a clear difference between the two. The former protects you in the event you are unable to get a Loan Commitment Letter. The latter protects you in the event that the lender (who has already issued you a commitment letter), decides not to fund the loan at or prior to closing.

Given the post 2008 lender/underwriter requirement, in my opinion, I would not advise signing a contract without a tight funding clause.

i made an offer on a place a week ago. seller accepted the price, but, via my agent, i heard that seller insisted on no-financing contingency. (although, my offer did say i needed a mortgage, etc.) went a few rounds with my broker where she tried to convince me that there was nothign to worry about, the building is just fine, all the banks have loaned there, and if i dont jump a real all-cash buyer is coming right around the corner, etc, etc. but then i said to myself, the broker is not going to pay me back if financing falls apart, and i could lose a ton of cash that i built up over a very long time, and without that cash i probably can't re-enter the buyer side for an extremely long time. besides, why should this seller hit a jackpot that comes out of my pocket and its not even my failure that causes it. f that

told the seller: no contingency then no deal, and she relented within an hour.

dont take no guff from these swine.

I echo the majority voice here - coming from a very similar situation to "thuhfreak" where I also made an offer on a coop, seller accepted, but my real estate agent relayed the seller insisted on a no-contingency status to my offer. I almost succumbed to the pressure but last minute felt weird about it, asked around, and realized the high risk...ended up countering with offer that INCLUDED the contingency on my loan approval/funding.

Funny how the seller quickly turned around and accepted my offer. Now in contract, eta closing mid-march!

Biggest disappointment: to find out how grubby my real estate broker truly is

Biggest takeaway: protect your interests