Chapter 20 — Key Takeaways

The Purchase Transaction: The Contract, Contingencies, Earnest Money, and the LO's Role in the Deal

The one-sentence version

You are not a party to the purchase contract, you never sign it, you cannot amend it, and it governs your entire file — so read it for the five terms that control the loan, flag what you see, and route every legal question to the people whose job it is.

The core claims

1. The contract is a schedule of deadlines with a document around them. Every date in it is a date the loan must hit or a right that expires. Several expire in silence.

2. A closing date named in an offer is not a runway. Linden Street named day 45 and executed on day 4: 41 days, not 45, and the missing four come off the end where conditions live.

3. Build the calendar backward from closing. Order the long-lead items — appraisal and title — first. Slack is bought at the front of a file and spent at the back.

4. Choose the lock term against the contract's closing date plus a buffer, not against today. A 30-day lock taken on day 12 expired day 42 against a day-45 closing. It was short the moment it was taken.

5. Earnest money is the buyer's money, held by a neutral party, credited at closing. \$5,000 on Linden Street — 1.30% of price. It is lost mainly one way: a protection expired and nobody noticed.

6. The financing contingency protects a buyer who acts, not a buyer who suffers. Many forms require written notice by a deadline; silence waives. Others work the opposite way. You have not read their form and must not tell them what it does.

7. Waiving a contingency changes nothing about probability and everything about who absorbs the consequence. It converts a deposit into money at risk, and possibly more.

8. Appraisal-gap coverage binds the buyer, never the lender. The lender still lends on the lesser of price or value.

9. Contribution caps vary by occupancy, loan-to-value, and program, apply to the lesser of price or value, and are capped again by the borrower's actual costs. No interested party may ever fund the borrower's own required down payment.

10. Every amendment is a loan event — even the ones that look like good news. Ask for every executed amendment within 24 hours, at every status call, as a routine question.

11. You read; you flag; you route. Reading is not advising. Telling a borrower what a clause means, or what to give up, is.

The key formula

  THE SHORTFALL RULE

     Additional cash required  =  maximum LTV  x  (contract price − appraised value)

  Because the loan is capped at LTV x value, each dollar of lost value costs the
  buyer only LTV cents of borrowing capacity.

  Cypress Court:   0.80 x $35,000  =  $28,000
  A 95% LTV file:  0.95 x $35,000  =  $33,250

  The SMALLER the down payment, the MORE a low appraisal costs in cash.
  Borrowers get this exactly backwards, every time.

The numbers from this chapter

The sentence that keeps you inside the line

"I can tell you what your loan can do by that date. I can't tell you what that paragraph means — that's your agent's question, and if it's a legal question it's an attorney's."

Say it out loud until it is automatic. You will need it in a competitive market at 9:00 p.m.

What you should be able to do Monday morning

• Take an executed contract, reduce it to a seven-line summary in four minutes, and send the buyer's agent two numbers: the closing date and the days actually remaining.
• Build the backward pass from the closing date and name the last day the appraisal can be ordered.
• Compute the additional cash an appraisal shortfall requires, at any loan-to-value, in under thirty seconds.
• Price both rungs of a concession negotiation — credit versus price reduction — and say which one this borrower's balance sheet needs.
• Test a seller credit against two limits: the contribution allowance and the borrower's actual costs.
• Answer a listing agent's call with a signed authorization in hand, and refuse the third question.
• Say the boundary sentence without hesitating.