Do you need to win a house from cash or cash-heavy buyers in Seattle’s multiple offer market? One item to consider is to waive your “Financing Contingency.”
Waiving your financing contingency comes with risks and it appears to be key to winning a detached single-family home in Seattle.
What Does Your Financing Contingency Do?
The simple answer to this question is that it protects you from losing your earnest money if your financing fails during the process of you purchasing a home. Whether your personal financing failed, or the property failed to be approved by the lender, the financing contingency protects your earnest money.
This all assumes that you have made a good faith effort to acquire a loan. A good faith effort means you have not deceived or misled your lender. You’ve made a full loan application within the time period noted on the contract. You have submitted all documents to the lender in a timely manner. And most importantly, you have the necessary non-contingent funds needed to close. Consider all of these things before you commit to waiving financing.
By waiving financing, you are essentially saying to the seller that your offer is as good as cash.
You and the property are so well qualified there is no way your loan is going to be denied. If it is denied for any reason, the seller gets to keep your earnest money.
Get Your Financing in Order
- Getting Approved For a Mortgage
- What Are Closing Costs
- Competing Against Cash Offers
- Difference Between Pre-Approved Versus Pre-Qualified For a Home Loan
Can You Waive Your Financing
First things first, are you a good candidate to waive your financing and compete against all-cash or cash-heavy buyers?
Is my income stable?
Do I have additional cash to come up with in case the appraisal comes in low?
How much money do I need extra to cover a low appraisal in a worst-case scenario?
And if the answer is yes to all of these questions then you are a good candidate to waive your financing.
Guide to Waiving Your Financing to Win Against Cash Offers
As a buyer, before you decide to waive your financing contingency you should know what the financing contingency does: You need your personal loan approval to be sound, the property must be lendable, and you need to be prepared to deal with the appraisal. Once you have addressed all these conditions you are in a good position to waive your financing contingency and beat out cash offers.
Make Sure You Are Fully Approved for a Home Loan
When you apply for a loan, the lender conducts a thorough check of your financial background. They review employment, assets, credit score, bank statements, and more. They need to verify that you are a solid candidate for a loan.
Good lenders will do most of this verification upfront so you don’t have any surprises while you are in contract on a property. Here is a quick guide on how to get pre-approved for a loan like a Smart Diva Dweller.
Before and during the transaction, it’s important that you maintain your employment, income, and credit score at the same level you were originally approved for. If any of those items were to change, your loan could be denied. If you are waiving financing and your loan is denied, you will lose your earnest money.
Pro Tip ~ Have a conversation with your lender to see if your file has been sent to underwriting before you waive financing.
The Property Has to Be Lendable aka Pass Appraisal
There are several types of home purchases that will not qualify for a home loan. For instance, a home that has had a house fire and is essentially unlivable will not meet financing Guidelines. Below we break down issues that could come up for single-family homes and condos.
Single Family Homes and Townhomes That Are Not Condos
When you apply for a loan, you are not only seeking approval for yourself. You are seeking approval for the property as well. Houses, townhomes, and condos will be assigned an appraiser that assesses for value and habitability. The bank is not going to lend on a property that is unsafe for residents. Lenders will not take a risk on financing a property with unresolved hazardous conditions. If you have waived your financing contingency and the bank refuses to lend, your earnest money could be in serious jeopardy.
Condos and Townhomes That Are Also Condos
Condos have slightly more risk because there are many factors that are out of your control. Your lender’s underwriting department is going to review the building’s financials to ensure the HOA is healthy. Every year there is a new law regarding lending on condos. The lenders’ underwriting department will be looking at items such as high delinquencies in dues, square footage of commercial space, budgets, and renter-to-owner ratio. If any of these items fall out of the lender’s acceptable parameters, they may not finance the building. Once again, if this happens and you are waiving your financing contingency, you would lose your earnest money.
Pro-Tip ~ A pre-inspection can help you determine if the lender is going to find major defects in the home during the appraisal. If your licensed inspector does not find anything, chances are the appraiser won’t either.
Waiving Financing Typically Means You Are Waiving Your Appraisal
The appraisal clause is part of your financing contingency. If you waive your financing contingency, then you are also waiving your rights in the event of a low appraisal to negotiate a lower price for the home. In the event of a low appraisal, the appraisal clause gives you options to negotiate with the seller or leave the contract with your earnest money. Without the financing contingency, you would need to cover the difference between the purchase price and a lower appraised price.
What if I am overpaying? Isn’t the appraiser supposed to know the market value?
The answer is no! Market value is what someone is willing to pay for a home. And the legal parameters for someone doing an appraisal are super restrictive. Meaning that the banks require at least two sample homes that have sold at the same price to be used in order to calculate the appraised value. The market value is determined by what the market can handle. And when you are in the middle of a 20 offer competition for a home in a low inventory market there are too few comparable properties for the appraised value to match the market value.
Here is some information about waiving the appraisal.
Pro Tip ~ You may be able to use an appraisal addendum in lieu of a financing addendum. This way you can waive financing, but keep your appraisal protections.
How to Win an Offer in Seattle in a Multiple Offer Market
Over the years we have written a ton of content to help you win a multiple offer in Seattle. Waiving financing is a big part of that strategy as inventory continues to shrink. Below are the general steps we have folks review when we are writing an offer for our Diva Dwellers. Typically this strategy helps them to be in the winning seat.
- Choose a Team That Will Prep You for the Market
- Size, Condition, and/or Location
- Pre-Inspect the Home/Waive Inspection
- Waive Title Review
- Put Down a Minimum of 5% of the Purchase Price for Earnest Money
- Release Earnest Money to Seller at Mutual Acceptance
- Starting and Final Price
- Escalation Amounts
- Waive Appraisal or Have a Plan for Coming Up With Cash In Case of a Low Appraisal
- And Obviously, Waive Financing
Team Diva’s Guides to Winning a Multiple Offer
- Download Our Guide to Winning a Multiple Offer in Seattle
- Team Diva’s Method of Winning a Multiple Offer in Seattle in 2022
- How to Win a Multiple Offer in a Hot Market
- Advice From The Team to Win a Multiple Offer
- Video Series – How to Buy a Home in Seattle
As you can see waiving financing has its risks. You can minimize those risks by doing your due diligence before you submit your offer. Talking with your lender, consulting your real estate agent, and reviewing all available documentation are the keys to waiving financing comfortably.
We are here to help. Our team understands that this process can take a year or two. And we are more than willing to give you a personalized plan to get the ball rolling. Feel free to contact us directly at email@example.com or call/text 206-271-0264.