What Do I Need To Know When Applying For A Loan To Purchase Residential Property In Pennsylvania?
People need to know what they will be able to afford when applying for a home loan. Buyers should get pre-qualified with a lender so they have a better idea of what the lenders will be willing to lend them in their current financial situation.
Getting pre-qualified is not something you want to do with multiple lenders to see if the amount is different. Each lender you apply with will be running your credit report each time. If they’re all different lending companies, your credit will take a hit for all the requests those lenders submit at some point.
Nonetheless, if you know what you can afford upfront, you’ll know your financial limits for a home or property purchase. Getting pre-approved by a lender can help you focus more on what kind of property you will purchase or if it even makes sense for you to buy based on your current buying ability.
Once you find a home that you believe is going to work and you decide that you want to buy it, the next step is to make an offer. You’ll need to have a fully executed Agreement of Sale before you can go back to the lender. This is because the lender would have to qualify you for the loan. After all, without the Agreement of Sale, the lender has nothing to assess.
When Should Financing Be In Place During The Purchase Of My New Home In Pennsylvania?
When you make an Agreement of Sale using the standard Agreement of Sale form that’s typically used here in PA, there is a mortgage contingency that the buyer can elect. This mortgage contingency could say something like, “I’m going to give you $200,000 for the house, and I have to be able to qualify for a mortgage of no less than $160,000, and it has to be at an interest rate between 4% and 6% for 30 years and a fixed loan.”
Let’s say you need a home loan to purchase $200,000. When the lender submits your loan request, but it is denied for that large amount, if you elected the contingency, you would be able to terminate the contract and obtain your deposit back. Before you go house hunting, pre-qualifying with a lender up front really gives you the most surety that you’re going to have that the property you find and want to make an offer on is also one you can afford.
Attorney Tom McLaughlin recommends looking at pre-qualifying before beginning your house hunt. Once you find a home you’d like to buy, especially the way the market is now, you need to make an offer sooner rather than later. If financing is critical for you and required so you can make the purchase, you need to elect that contingency.
In recent years, that contingency has been a problem considering sellers may have 3 or 4 buyers that make an offer within the same hour. If a buyer hasn’t elected the mortgage contingency in the agreement, there are offers worth more because the seller isn’t left holding a deposit and not knowing whether this buyer will ever be able to buy the home.
Initiating the loan process up front is imperative to know what your ability is in terms of borrowing. Then, after you obtain the assigned Agreement of Sale between the buyer and the seller, you need to get that Agreement of Sale to the lender quickly so they can process the loan. This will ensure that you can get the loan and issue a formal commitment (often also required by a certain date) in the standard sale agreement.
Will My Real Estate Attorney Assist In The Financing Of My Home?
A real estate attorney assisting in the financing of a home has different connotations.
For example, say a buyer wants to purchase a home, and the seller has already paid their mortgage in full and owned the home outright. Say the seller was doing well financially and didn’t really need the money but still wanted to sell the house. In this situation, the seller might be willing to accept the buyer financing the property.
If the seller is willing to accept the buyer’s financing, the seller still needs a mortgage and a note, just like a bank or a traditional lender needs.
One role where a real estate attorney can assist in the financing process is by:
- Drafting and reviewing the note and mortgage with each party
- Getting the note and mortgage properly executed and recorded to protect the seller at the time of sale.
In another example, say somebody is working with a bank or traditional lender. If the attorney provides the Agreement of Sale, the note and mortgage would be something the attorney might channel to the lender for review and any questions from the buyer. It may be a point of communication for that buyer and their lender if that’s what the buyer decides.
Unless the lender has an authorization for someone else to communicate on behalf of the buyer, buyers must remember that the lender cannot speak to anyone unless they’re going to be one of the parties on the loan.
Tom has had experience with buyers who have questions or issues during the financing stage and have asked, “Can you just talk to the lender about this for me? I’m not sure how to ask.” Unfortunately, this isn’t something that an attorney can do at a moment’s notice. The loan is truly that of the buyers, and lenders have requirements that prohibit them from randomly sharing information with other unauthorized parties.
For more information on Financing A Real Estate Transaction In PA, an initial consultation is your next best step. Get the information and legal answers you seek by calling (717) 990-7178 today.
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