Is The Buyers Home Purchase Always Contingent on Getting a Loan?

Westcoe Realtors, Riverside Ca…If Realtors had a “Top 5” questions asked by a buyer, our vote would be that this is one of them. Whenever a buyer is obtaining a new loan for the purchase of a home (which is almost all the time), is a buyer protected from losing their deposit if the loan is not approved by the lender?

Well…the answer is usually…but be careful here, because there are a number of instances where this is not the case.

Let’s start with the “normal” course of events.

In most cases, the buyer has 21 days from the sellers acceptance of the purchase contract to get their loan approved. This 21 days is the default number in the purchase contract, but it can be either shortened or lengthened in the contract, depending on what the buyer and seller agree to do…but without any changes, the buyer has 21 days to get loan approval from the lender.

All lenders understand that the buyer is under a time-gun here, so they all should be working to give the buyer a definite answer within this 21 day time period…and if for any reason this time frame has been shortened per the contract, then be sure to let your lender know.

At the end of the 21 day period, if the seller’s real estate agent is on the ball, the buyer will be asked to sign a form that releases all loan contingencies, and only after removing the loan contingency is the buyers deposit at risk if they fail to close the loan.

What happens if the loan is not approved within 21 days?

Well…that depends. The seller could extend the time frame (there usually needs to be a pretty good reason why this extra time is needed), or the seller could insist that the buyer remove the loan contingency anyway or the seller will cancel the transaction, which is the seller’s right.

Every situation is different, and therefore there is no ” correct” answer…just what makes sense in your transaction. As the buyer, you have do decide what is worse…losing the house, or potentially losing your deposit. Just understand that once you remove the loan contingency, if your lender can’t make you the loan, for whatever reason, then you may lose your deposit.

Discussing all this with your real estate agent is a must, and then you can make the best decision possible given your circumstances.

Hope this helps if you ever find yourself in this situation.

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