Non Contingent

Have you been able to obtain a "pre-approval" letter from the bank you are planning on using or a mortgage broker?

As 30 says, if you have pre approval for the appropriate mortgage amount, you do not have much to worry about.

I have a pre-approval from another mortgage broker for a purchase $100K more than this property, and the lender I am using is telling me I shouldn't have an issue.

I think you should be fine but it should only take a few days to get approval specific to the apartment you are buying subject to appraisal. There are never any guarantees till funding but the risk is miniscule.

Thanks - stressful to think about losing a deposit!

Usually it's the buyer who offers a non-contingent deal as part of negotiations. Unusual to have the seller 'insist' on it. Was this a bidding war situation? If not, I don't know that I'd be so quick to agree to a non-contingent deal unless you are able to secure a lower sales price or other compensation for your trouble.

Could be that there are other offers, including cash offers. Happened to me when I sold. I asked the two financed offers to remove contingencies. One removed appraisal contingency, but I thought the financing was still too shaky. One did not remove the contingency. I took the (lower, but still full price) cash offer. If you're competing against cash buyers, waiving contingencies is pretty standard.

Is the property SO unique that you can't just move on to something else? Maybe I'm overly conservative ( I remember once losing a deal over this) but I recommend that you NOT waive the financing contingency unless it really wouldn't damage you to lose the deposit -- or unless, if you were stuck, you could borrow the money from elsewhere to close.

Even if I did tell a buyer client, "nah, that's okay, waive it," none of the attorneys I work with would back that play. What if you lose your job in the next two weeks? What if the bank refuses to fund? Pretty unlikely events, but with fairly adverse consequences.

ali r.
{downtown broker}

I had a seller tell me no finance contingency, but my attorney put it in anyway. The sellers attorney either didn't notice or let it go, but as a buyer for the reasons Ali mentions (and others) I would not agree to no finance contingency.

I also had pre-approvals that have not gone through for various reasons, banks are more generous with pre-approvals than they are with actual mortgages. One is no guarantee of the other. One occasion comes to mind was a pre-approval I had from a large bank, only for them to back out when they finally looked at the docs and decided the unit was a non-warrantable condo. They hadn't bothered to confirm this when giving me the pre-approval...

Buyer beware my friend, cover all your options and be protected...

Ali,
Are you finding most sponsor sales to be offering a mortgage contingency these days?

We need to know more about the seller to know what is really important to the seller and therefore how to negotiate best on your behalf.
Co-op? Condo?
Who is the seller - an individual? A large sponsor in multiple buildings? A bank? An estate?
Does the seller have any distress?
How long has it been on the market?
Where is your price relative to the asking price? What is the price point? Provide context to comps in the building.
What information do you have regarding other offers the seller might have?
What neighborhood is this in?
What are your other alternatives? How long have you been looking?
Is a broker involved on the seller's side? A normal broker? One who does deals for a living, can write coherently, doesn't say he's a savvy negotiator, and isn't involved in the latest crash in the Hamptons? Or a delusional FSBO person who came on streeteasy and asked advice on whether to accept an offer with a financing contingency?
What about on your side?
If you don't buy right away, will someone be nagging you? Are there kids involved?
How long do you plan on living there? Do you really want this building if you might have to turn around and be as difficult as this seller?
etc.

Ali - I negotiated an out for loss of job. Only thing I haven't gotten an out for is bank not funding...

Thanks for the feedback everyone - much appreciated.

If you have all these specific "outs" for appraisal, loss of income, material adverse events, etc. then I don't think I understand what the seller is really getting out of this insistence on making the contract non-contingent on mortgage approval and funding? It doesn't sound like there's much left.

If you have a bank preapproval letter, the risk of the bank not funding seems very low. Unless you lose your job, in which case you already have an out.

This is a very personal and important decision you have to make. Remember that once you receive a commitment letter the financing contingency would disappear, this is where the very rare funding contingency comes into play. We had a very recent scare on a deal that is contingent on financing. The client was approved by the board, commitment letter in hand. While scheduling closing the bank dong its final clear to close work decided it was revoking its building approval and would no longer fund the loan. This was a first for us. Client was an employee of bank as well, long story short the bank granted an exception. The good news was either way the seller was going to work with us.

You have all the facts and know all the risks. I would have a talk with both my banker and attorney one final time before deciding.

As brokers we never push a client to remove their financing contingency. Although there have been a few times I strongly insisted that one should be in place. The reality in today's market if you are contingent on financing it can greatly reduce your success rate. We have had good success requesting a shortened contingency period , say 2-3 weeks (instead of 30-45 days) and sometimes waving the appraisal contingency (after careful analysis of worst case scenario and whether the buyer could shoulder it). In non competitive deals this can give a seller a level of comfort that they can accept. We have a few excellent bankers we run this by and they will assist in meeting the deadlines. Worst case scenario we ask for an extension if we need a bit more time.

Keith Burkhardt
The Burkhardt Group

I agree with Ali. Anything can happen between now and closing. And the deposit is a big chunk of money. I won't do it. The financing contingency is there for a reason - to protect you, the buyer.

@30 years, I suppose not -- but since clients seem to think that my sweet spot is doing the dance of the seven veils for a co-op board, I'm not going to be the broker in a sponsor sale situation anyway, so I would never see that. Someone wants a sponsor unit, they'll call you, or Keith, or some other third party.

@Matthew, I think the risk of a bank pulling out of its commitment to fund is pretty low - but I do remember it happened in 2008 as the crisis started to hit. I remember one deal where Countrywide was like, oh, we're not going to fund ... oh, alright, we'll fund if we can just change the interest rate. WTF? There was some screaming and broken crockery on THAT deal. Client did end up closing, though.

We got pre-approved by the bank and were encouraged by our broker to make an offer with a "no mortgage contingency". We did as much research on what a "no mortgage contingency" was, but we did not realize how serious it was. Basically, it means that if the bank does NOT approve you for the mortgage, you are still obligated to purchase the house/apartment; if you back out, you will lose your deposit. In our case, even with outstanding credit scores and no other debt, the bank took more than 3 weeks to approve us for a mortgage; the bank wanted my husband to have 3 separate credit cards in his name (which he did not have), and me to have the same (which I did have); we were so freaked out that the bank would reject our mortgage application, even though they knew about the number of credit cards when issuing the pre-approval letter. Those were some of the most stressful 3 weeks of our lives, as we feared losing over $250,000 in deposit. I would strongly caution against a "no mortgage" contingency; it's there to protect the buyer.

Just to play Devil's Advocate, what about protections for the seller? Let's say the seller is also in contract to buy a new place for substantially more money, has qualified for their new mortgage, but needs the proceeds to complete their new purchase? If their buyer can't get financing on the sale, now they are in danger of losing their deposit.

Just saying, MatthewNYC would have greatly benefited from a buying agent...!!!

as the listing agent, as long as I can leverage multiple offers I will insist on waiving financing contingency. If people want the appraisal contingency to stay in effect that's fine, it's on me to comp the property properly.

>Just to play Devil's Advocate, what about protections for the seller? Let's say the seller is also in contract to buy a new place for substantially more money, has qualified for their new mortgage, but needs the proceeds to complete their new purchase? If their buyer can't get financing on the sale, now they are in danger of losing their deposit.

No, the seller retains the apartment and can sell to someone else later.

But they are still out their deposit on the new apartment which they could not close on.

Stop fear mongering. They can close later.

@30yrs, using your hypo - the seller should have a funding contingency on their purchase, or at least have their purchase contingent on the sale of their property.

People are saying a buyer should not sign a contract without a financing contingency, but you think a seller would give a contingency on the sale of the purchaser's property? I think it is highly unlikely that a seller would give such a contingency. And in terms of this seller turned buyer having a financing contingency, it would be based on putting down the cash received from their sale, so they would clear the financing contingency yet still not be able to close for lack of having the complete down payment.

This is popular in the UK, the properties are known as being in a "chain" where you can have any number of properties all relying on the one before it in the chain closing before the next can close. Of course when one link breaks it causes problems but it seems to work for the majority of residential sales where people often have to wait for their property to close before buying another. And oddly, buyers and sellers are ok with this situation...

just did a little reasearch and 90% property sales in the UK are in some sort of chain. Wow. I guess that's why I take the funding contingency for granted and will stay away if I cannot get one...

Do they also have a lot of post closing possession agreements?

I have bought and sold in the London. As wanderer said, a chain is very common there. Usually, the worst that happens is that things get delayed a bit if there is a hiccup somewhere along the line. When I was selling my apartment here and buying another, I was surprised to learn that things don't work here as they do in the UK. It was actually a bit of a pain. I had to close on my sale before being able to close on my purchase and ended up having to take a short term rental and live there for three or four months. This was because the first deal I had to buy fell through. Interestingly, I do believe I had a contingency in the contract that covered me selling my place first, as I needed the equity etc. to fund the deposit on the new place. This was back in 2011.

had a sale with the chain close last week, we closed in the morning and the seller went upstate to close on his new house in the afternoon. He was English, interestingly enough. I had forced the buyers to give up their financing contingency. There had been 6 offers, one contingent but iffy and 4 others with varying levels of financing.

Depends if you have the cash to close regardless of obtaining the financing, while able to show post closing liquidity and closing costs. A non-contingent mortgage simply levels the playing field of someone offering ALL CASH for the apartment. This way if the apartment doesn't appraise for the purchase price you have agreed upon, then you can't break the contract and the seller won't have to go back to the drawing board to find a new buyer.