Getting a full mortgage approval is actually a two important step process. Each step checks different factors to contribute towards the full loan approval.
Buyer Financial Approval
In obtaining a Buyer Financing Approval, a buyer is checked for credit worthiness. A full mortgage application is completed and credit is checked. Then, the mortgage lender receives supporting documentations such as W-2 Tax returns, 1099-statements (if applicable), and other other asset statements such as 401K, retirement accounts, banking accounts, etc. to ensure that the information as mentioned on the application are true, correct and verified.
Here in Texas, a sales contract MAY include a Third-Party Financing Addendum. What this addendum tells the Seller is the type of loan the buyer intends to acquire, for up to a maximum interest rate and for how long. The most important section of this addendum is the DATELINE for Buyer Financing approval. This dateline is subjected only for Buyer’s portion of financing approval. It does not include property approval (see below).
When this dateline is elapsed, it would be assumed that the Buyer have received his/ her portion of the financing approval.
See excerpt from the contract below:
Property Approval
In this section, the property has to be approved by the lender to complete the full approval. The lender reviews the property appraisal, insurability and property conditions.
Property appraisal – The lender needs to ensure that the property appraises for at least the amount borrowed. However, with the market conditions these days, lenders also makes sure that the appraisal meets sales prices – for a just-in-case situation. As an example, if a buyer puts 20% down on a $100,000 property, the bank needs to ensure that the property is valued at least $80,000. But recently, banks have also made sure that the house is truly indeed valued at $100,000 to protect their future issues that may arise.
Insurability – The property must meet the minimum insurability requirements of the buyer.
Property Conditions – Different types of loans have different property condition criteria. FHA loans are more stringent than conventional loans. If there are structural damages or serious maintenance issues to the property that may cause the condition of the property to deteriorate further, lenders usually request for these issues to be repaired before a full approval is granted.
Here in Texas, the property approval request arise in the original sales contract under Section 4 A (1) that states the property must meet the lenders’ underwriting requirements for loan approval. There is no dateline for property approval.
See excerpt from contract below:
It is important for a buyer to understand the full loan approval process. As always, in real estate – It is important to act and respect dates given on the contract. Time is of an essence in real estate.
The information may be confusing for some buyers – including real estate agents. If you need any clarification on any of the items above, or the loan approval process, please contact us.