Recently, a homebuying couple removed their loan contingency based on the verbal representation from their loan agent that the loan was formally approved — most lenders won’t issue written loan commitments. The buyers removed their contingency leaving them with a contingency-free contract.
The next step was for the lender to provide loan documents for the buyers to sign so that the funds needed to close the transaction could be issued. Many promises were made about when the documents would be ready to sign. The buyers were assured that the closing would occur on time.
A day after the contract closing date, the loan documents still weren’t ready. It was only then that the lender informed the buyers that they did not have a loan. The buyers managed to stay in contract by requesting an extension of the closing. In consideration for this, they had to pay the sellers a nonrefundable deposit.
Unless you’re paying all cash and the funds for closing are liquid and verifiable, your purchase contract should include a loan or financing contingency. With such a contingency, you are protected if you use due diligence to procure a loan, but are unable to obtain one. In this case, your deposit is usually returned to you when the contract is canceled. Purchase contracts might also include preapproval and appraisal contingencies.