Almost all of us take out a mortgage when we purchase a home. In Texas, when you make an offer that is contingent upon financing approval to complete the purchase, you will want to sign a third party financing addendum.
The Texas Association of Realtors addressed a few of the components of this addendum in a recent email update to Realtors. This is information they shared with members in the recent update.
Third Party Financing Condition Addendum
I'm having difficulty understanding the terms and issues involving the Third Party Financing Condition Addendum. How does this addendum work?
Prior to the adoption of the current addendum, there was considerable uncertainty as to when and how it was to be determined if the buyer had satisfied the lender's financial requirements. Often the dispute concerning the lender's approval would arise many days after the time period for approval under the prior addendum had expired, and the argument would be whether approval had in fact been obtained within the days specified.
In order to give all parties some certainty about this approval process, the addendum was changed to put the burden on the borrower/buyer to provide written notice to the seller within the time specified if the buyer cannot obtain the necessary financial approval. This would seem to be appropriate, since the buyer is in the best position to obtain that information from the lender and, after all, it is the buyer's contingency. If the buyer is not satisfied that he has obtained financial approval relating to his assets, income, and credit history within the time provided, the buyer must give timely written notice to that effect to the seller. If the buyer gives a timely notice, the contract terminates, and the earnest money is refunded to the buyer. If the buyer does not give such written notice to seller within that time period, the contract will no longer be subject to the buyer's financial approval regarding assets, income, and credit history.
The addendum does not require that the buyer obtain financing approval within the specified time period. Rather, it provides an opt-out period for a buyer who does not believe he can obtain that approval.
As was the case before this change, the lender's approval of the property as satisfying the lender's underwriting requirements is separate from the buyer's personal qualifications.
*Quoted from The Texas Association of Realtors.
As a home buyer who's not a real estate professional, here's the top 5 things you need to know about the addendum.
- It is the buyers responsibility to give written notice to the seller if they are unable to get their loan approved.
If the buyer gives written notice within the time frame then they will be able to terminate the contract and the earnest money will be refunded.
The buyer does not have to have loan approval within the given time period.
The home must still meet the lender's underwriting requirements regardless of the time frame for financing approval.
If the property does not appraise for the purchase price then the buyer has the option of proceeding with the purchase or terminating the contract.
That's a quick and simple explanation of the third party financing addendum. As with all contracts, if you have specific legal questions when you should consult an attorney. If you are starting a home search, you will find there is a lot of paper work that comes along with buying a home. If you are getting a mortgage to buy your home then you will want to make sure you are signing a third party financing addendum. Its for your protection.