The Sate of Tennessee grants realtors the legal right to complete certain information in a binding agreement between Seller and Buyer.
First, notice that each line in the contract is numbered on the left and when discussing questions you may have with your realtor you can include the line number which will help clarify your questions or comments.
Section 2 begins with the offer price and states that the buyer can warrant this price through other items in the agreement that they can provide the funds by the closing date using one of the following methods:
- Bank Transfer
- Cashier’s Check
- Other form approved by the Seller
Section 2A Financial Contingency – Loan(s) to Be Obtained
The financial contingency states how much the loan will be and the only prerequisite is that a Lender has qualified the for the “Ability to obtain” a loan by a lender’s “customary and standard underwriting criteria.” This doesn’t mean that the buyer has been “approved” for the loan but simply “pre-approved” for the loan to purchase the property.
Approval will take a lot more investigative work by the lender and the buyer will have to obtain proof of income and other considerations.
This is why some properties are listed as “Contingent” which means the Purchase and Sale Agreement has been accepted by the seller and buyer but the buyer has yet to prove they can purchase the property. Section 2A only deals with Financial Contingency, not Cash buyers. There are other requirements that the property must meet before the purchase and sale agreement would become “Pending” and the sale finally complete.
Keep this in mind when looking for real estate but keep in mind that statically, very few fall through. Some Sellers will accept other offers on Contingent properties and it never hurts to ask.
Section 2A goes on to state that:
In consideration of Buyer, having acted in good faith and in accordance with the terms below, being unable to obtain financing by the Closing Date, the sufficiency of such consideration being hereby acknowledged, Buyer may terminate this Agreement by providing written notice via the Notification form or equivalent written notice.
The Seller has the right to request all documentation that determined this failure to qualify and the buyer has to have acted in “good faith” in obtaining the loan. If all of that is satisfied the buyer can receive all of their earnest money deposit back if the Financial Contingency falls through. (Earnest money is the “good faith” offer in cash or check by the buyer to give to the Buying Broker to hold while the Contingency period is being executed. It is usually a substantial amount that provides assurance to the Seller that the buyers is a serious customer.)
Also in Section 2A is the buyer’s type of loan. Notice that more than one box can be selected. The choices are:
- Conventional Loan
- VA Loan
- THDA Loan
- FHA Loan
- Rural Development/USDA
According to this agreement the Buyer is “obligated” to Close to the transaction with any type of loan as long as all the other requirements of the document have been satisfied.
Loan Obligations: The Buyer agrees and/or certifies as follows:
- Within three (3) days after the Binding Agreement Date, Buyer shall make application for the loan and shall pay for credit report. Buyer shall immediately notify Seller or Seller’s representative of having applied for the loan and provide Lender’s name and contact information, and that Buyer has instructed Lender to order credit report. Such certifications shall be made via the Notification form or equivalent written notice;
- Within fourteen (14) days after the Binding Agreement Date, Buyer shall warrant and represent to Seller via the Notification form or equivalent written notice that:
- Buyer has secured evidence of hazard insurance which will be effective at Closing and Buyer shall notify Seller of the name of the hazard insurance company;
- Buyer has notified Lender of an Intent to Proceed and has available funds to Close per the signed Loan Estimate; and
- Buyer has requested that the appraisal be ordered and affirms that the appraisal fee has been paid.
- Buyer shall pursue qualification for and approval of the loan diligently and in good faith;
- Buyer shall continually and immediately provide requested documentation to Lender and/or loan originator;
- Unless otherwise stated in this Agreement, Buyer represents that this loan is not contingent upon the lease or sale of any other real property and the same shall not be used as the basis for loan denial;
- Buyer shall not intentionally make any material changes in Buyer’s financial condition which would adversely affect Buyer’s ability to obtain the Primary Loan or any other loan referenced herein.
#6 is very important. After getting approved for the loan, do not go out and buy a new car or other large purchases. Doing so could impact your approval and cost you your earnest money.
Very Important: And finally line 81 states that if Buyer fails to notify seller about the completion of Steps 1 and 2 above that the buyer has two days to comply if not, the contract can be terminated by the seller.
Make sure you inform the Seller of 4 things and in the time frame of the contract:
- You’ve submitted Loan Application and have paid for a credit report (within 3 days of Binding Agreement)
- You’ve secured Hazard Insurance and given name to Seller (within 14 days of Binding Agreement)
- You’ve notified Lender of Intent to Proceed and has available funds to close (within 14 days of Binding Agreement)
- You’ve ordered an Appraisal and the fee has been paid (within 14 days of Binding Agreement)