Contract Quiz – Lender’s Letter

Which of the following statements are True?
o Sellers are better protected if they require their Purchaser’s to attach a Lenders Letter in order to remove the financing contingency.
o Mortgage Broker’s Cannot Provide the Lender’s Letter.
o It is impossible to know if a loan meets underwriter and investor guidelines until a day or two before settlement.
o A lender letter cannot be provided until the appraisal and title report are complete
o Many lenders have local underwriting departments

Myth: Sellers are better protected if they require their Purchaser’s to attach a Lenders Letter in order to remove the financing contingency.
o Seller’s position is stronger (legally speaking) with fewer contingencies. Contingencies are generally construed to benefit the Purchaser.
o Making it more difficult to remove a contingency give Purchaser’s more time to get out of the Contract without consequence.
o Get the assurance you want from the Purchaser up front – we still know a good “pre-approval” letter when we see one.
o Use Paragraph 12 to stay abreast of the progress of the loan in lieu of the letter

Myth: Mortgage Brokers Cannot Provide the Lender’s Letter.
o The word “lender” by itself is not a defined term in the contract. A good mortgage broker can get all 6 items in an honest and truthful lender’s letter
o Use common sense . . . Talk to the Broker BEFORE ratification and after. Ask lots of questions and demand answers. Use Paragraph 12 after ratification.

Myth: It is impossible to know if a loan meets underwriter and investor guidelines until a day or two before settlement.
o This is a deliberately vague term. Meets guidelines does not equal “approved”.
o New Contract doesn’t say WHO has conducted the review. Most investors provide written underwriting guidelines for their loan programs that are furnished to originators (lenders, loan officers, and mortgage brokers).

Myth: A lender letter cannot be provided until the appraisal and title report are complete.
o The Appraisal contingency is completely separate from the Lender’s Letter and financing contingency provisions of the contract. You can remove the financing contingency and still have an Appraisal contingency in place.
o Although most letters will contain a caveat for satisfactory appraisal and title review, it is still safe to remove the financing contingency before those items are complete
o As noted above, appraisal contingency may result in a reduced sales price or a void contract – either way the buyer remains protected.
o Paragraph 19 requires Title to be marketable and insurable. Lender’s rarely require anything more than insurable title.

Reality: Many lenders have local underwriting departments.
o There are plenty of local lenders that complete the entire origination and underwriting process in the Washington Metropolitan area. Most are not affiliated with any particular Title Company and can provide great low rates and closing costs without taking away your (the agent’s) ability to close the deal where you feel most comfortable.

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