Closing Your Alexandria VA Home Sale: What is a Financing Addendum?

check_checkbook_111518Closing Your Alexandria VA Home Sale: Financing Addendums

Conventional Financing Addendum

Unless you are paying cash for your property purchase, you will have a financing addendum as part of your contract to purchase your new home. Which addendum you are using will be determined by the type of mortgage you are using:  Conventional, FHA or VA.

*The exception to this would be if you find yourself in a competitive situation and feel waiving it would put you at a competitive advantage.  This  is not without risk, of course, but is always the Buyer’s choice. 

The Conventional Financing Addendum will lay out the terms of your financing contingency, which is designed to protect you in the event you are unable to secure financing.

In this addendum, we will define the terms of the loan and length of contingency.   By signing the Conventional Financing Addendum, you are also agreeing to not only make written application for your financing within 7 days of the Date of Ratification, but also to “diligently pursue obtaining a commitment for such financing.”

In other words, you have to do what you say you are going to do – and in a timely manner – in order for the contingency to protect you in the event your financing falls through.

Unlike the Home Inspection Addendum,   the Conventional Financing Addendum continues up to and including the Settlement Date – unless the Seller gives Notice to the Purchaser that the contract will become void if the Purchaser does not lift the contingency.  This means delivering to the Seller a written notice removing the contingency.

As the Buyer, once you receive that notice from the Seller, you have 3 days to remove the contingency or the contract will become void.  If the Seller never gives notice, though, then the Financing Contingency remains intact.

Now, this does not mean you are fully protected by that contingency, however – even if the contingency has not been removed, you can be in default if your fail to settle as promised:

  • You don’t lock in the interest rate and rates increase so that you not longer qualify for financing;
  • You don’t comply with your lender’s requirements in a timely manner;
  • You change your lender – that is, you use a lender different than the one who provided your initial lender’s letter – and that lender fails to settle on time;
  • You don’t have the required down payment, closing costs or any other required funds;
  • You make any deliberate misrepresentations in your financial information which results in you not qualifying for financing.

In a nutshell, if you do not do what you promise to do in applying for and obtaining financing, you are not protected by the financing contingency.  You have to make a full faith effort.

piggybankhouseSo, when DOES the financing contingency protect you? 

Well, if through no fault of your own – and if you have fulfilled all of your obligations under the financing addendum  – you no longer qualify for financing, then if, prior to satisfaction of the financing contingency, you deliver to the Seller a copy of a written rejection of your financing from your lender, then you are covered.

For the time period the financing addendum is in force – and as long as you have made every effort to get financing as you promised you would in the contract – you can rest easy knowing you and your checkbook are being protected by the financing contingency. 

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