Contingency and commitment are terms that relate to the approval of a purchase loan through a lender. Mortgage contingency is a clause written into a sales contract making the contract void if no mortgage can be obtained.

A commitment is an official approval from the lender that satisfies the mortgage contingency. A mortgage contingency clause in a sales contract will specify the date at which the seller expects the buyer to have a commitment in place.

This date will typically be a week or two prior to the anticipated closing date. There are different stages in the process of getting an approval for a mortgage. The first one is a pre-approval, which is provided to the seller at the time the offer is made. Pre-approvals are often based only on verbal conversations between the borrower and the lender.

Usually the lender has at least pulled a credit report and is comfortable that the loan can be approved. If there are going to be multiple offers on the house, it can strengthen an offer if the buyer gets a full approval -- effectively a loan commitment -- right away. This can be accomplished by submitting income and asset documentation to the lender, who will underwrite the complete loan file. Even if a full approval is obtained at the beginning of the loan process, this does not constitute an actual mortgage commitment.

Additionally, the underwriter might ask for further conditions to be met regarding income, asset or credit documentation. Once all conditions have been submitted and cleared by the underwriter, the mortgage commitment is issued. Sometimes the mortgage commitment is issued just a day or two prior to closing. Some sellers will ask the buyer of a house to waive the mortgage contingency when the contract is drawn up.

While this could potentially save everyone from a scramble at the end of the process, it places the buyer in a risky position.

In order to get a contract in place for the house, the buyer had to place money in escrow. This earnest money deposit, as it is called, ranges from a few thousand dollars up to half of the down payment amount. If there is a mortgage contingency in the contract, the buyer would get this money back in the event he could not obtain financing. If he waives the contingency, then he would forfeit the earnest money deposit.

If you are in the market to buy a house, you can prepare yourself for a smooth loan process by getting your financing in place before you make an offer on a specific property.

Doing this has multiple advantages. First, you will have a realistic sense of whether your income and credit can support the mortgage you want. Second, having a full loan approval when you make your offer will set it apart from offer bidders with weaker approvals.

Finally, you will save yourself and the other parties of the transaction from a mad scramble to fulfill underwriting conditions as the closing date is approaching. With more than a decade of experience, Gregory Erich Phillips is a trusted expert on real estate and mortgage financing.

As an author, Phillips is known for his writings on economics, personal finance, religion, politics and culture. A loan approval has to go through several stages.

Q&A: Is earnest money returned if the lender | dicajytuh.web.fc2.com

Different Kinds of Approvals There are different stages in the process of getting an approval for a mortgage. Commitment After Conditions Are Fulfilled Even if a full approval is obtained at the beginning of the loan process, this does not constitute an actual mortgage commitment. Waiving the Mortgage Contingency Some sellers will ask the buyer of a house to waive the mortgage contingency when the contract is drawn up.

Early Preparation Makes for a Smooth Closing If you are in the market to buy a house, you can prepare yourself for a smooth loan process by getting your financing in place before you make an offer on a specific property. What is a Mortgage Contingency Rider Fannie Mae: Whole Loan Commitment Process Overview. Your Home, Mortgage Contingency Clause Daily Interest: The Six Stages of a Mortgage. About the Author With more than a decade of experience, Gregory Erich Phillips is a trusted expert on real estate and mortgage financing.

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