Protect Your Earnest Money
homebuyer in Colorado that is obtaining a mortgage loan to purchase a property
needs to be familiar with the language in the standard Colorado real estate
contract that relates to the "Loan Objection Deadline”. Failing to understand exactly
what this language means could result in the loss of the earnest money deposit.
Colorado Department of Real Estate has developed a standard
real estate contract that is used for almost all residential real estate
transactions. Most people who buy a home need a mortgage loan. And at the time
the contract is executed, very few homebuyers know definitively that they can
obtain a mortgage loan. Accordingly, the standard contract contains language
that allows the homebuyer to “escape” from the contract and recover the
earnest money if the homebuyer is unable to obtain a mortgage loan.
the contract negotiations between buyer and seller, one of the negotiating items
is the Loan Objection Deadline. This
will be a date that will between the date the contract is signed and the date of
homebuyer has until the Loan Objection Deadline the ability to notify the
property seller that a mortgage loan cannot be obtained. If such
notification is made to the seller before this Deadline, the
contract is cancelled and the earnest money is returned to the buyer. But if
such notification is not made by the Loan Objection Deadline, this contingency
is eliminated. And if the homebuyer
is ultimately unable to obtain a mortgage loan and complete the transaction, the
buyer will be in default on the contract, and the buyer’s earnest money is
each mortgage provider is different, most providers will issue to the homebuyer
Loan Commitment is a document issued by a mortgage lender that will notify the
homebuyer that they have been approved for a mortgage loan. The typical Loan
Commitment will have conditions - the homebuyer will have to satisfy these
conditions in order to obtain the mortgage loan. Some conditions will be
standard in every Loan Commitment, and some conditions will be unique to the
Most homebuyers mistakenly think that they are assured of obtaining a mortgage loan once they receive a Loan Commitment. Problems arise for homebuyers if the Loan Commitment has a condition that cannot be satisfied. If the Commitment has a condition that the homebuyer is unable to satisfy, the loan will not be available, which means the homebuyer will not be able to purchase the home and they will lose the earnest money deposit unless they notify the seller.
these potential issues with Loan Commitments, there are certain actions that
every homebuyer should consider.
set the Loan Objection Deadline at least 4 weeks after the contract is
executed. This gives the mortgage
provider enough time to issue a “clean” Loan Commitment with no conditions or
very minimal conditions.
make sure the mortgage lender is knowledgeable about this Loan Objection language in the real estate contract. Confirm with the lender that the Loan
Objection Deadline is a reasonable date by which a Loan Commitment can be
review the Loan
Commitment carefully, paying close attention to any conditions set forth in the
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