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Arizona Purchase Contract | Financing

The financing section of the contract takes up nearly an entire page and has a lot of pieces woven into it. The biggest piece of all is the loan contingency section. This states that the whole deal basically hinges on whether or not the buyer can obtain financing on the property. Also, not just any financing, but the financing outlined within the contract and on the Loan Status Report.

The Loan Contingency is explained in lines 50 through 53. It states that the ‘Buyer’s obligation to complete the sale is contingent upon the Buyer obtaining loan approval for the loan described in the AAR Loan Status Report without conditions no later than COE Date.’ In other words, if the buyer does not have full loan approval on or before the close of escrow date, they can use the loan contingency to withdraw from the contract and receive a refund of their earnest money, but only if they have made a ‘good faith effort’ to obtain full loan approval. The buyer must deliver written notice to the seller or escrow company on or before the close of escrow date of their inability to obtain financing.

Sounds like a ‘get out of jail free’ card, right? Not so fast – there are provisions that exclude failure to have a sufficient down payment or other funds due from the buyer necessary to obtain loan approval as a valid reason to exercise the loan contingency.

Another contingency nestled in the financing section is an appraisal contingency. If the property does not appraise for the sales price, the buyer has five days after notice of the appraised value to cancel the contract and receive a refund of their earnest money. If the buyer does not provide notice within the five days, they automatically waive the appraisal contingency. Depending on the situation and the specifics of the sale, some sellers will renegotiate the sales price at the time of notice of a low appraisal value.

The loan application must also be completed within five days after contract acceptance, unless already completed. Often times, the lender is the first stop before beginning the home search. The experience is a lot more enjoyable when you’re already pre-approved and know your limits!

There is a provision within this section that states that the buyer agrees to work diligently to obtain the loan approval and must sign all loan documents no later than three days prior to the close of escrow date. The buyer is ultimately responsible for their lender completing the sale by the close of escrow. This is why it is imperatively important that the lender have a proven track record of on time closings. Some lenders can jeopardize buyer’s earnest money deposits by not paying close attention to the timelines and communicating to the buyers and their agents when there are problems. Check references and do your homework here!

Also – don’t forget to lock your interest rate within your inspection period. Going beyond the 10 day inspection period without locking will waive your interest rate contingency and could leave you stuck with a much higher rate than originally quoted!

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