Loan Commitment in Condo Purchases: A Guide for Lenders & Borrowers

Importance of Loan Commitment in Condominium Unit Purchase

When financing a condominium unit purchase, a borrower, working with his or her lender, has a set amount of time to obtain a loan commitment.  The borrower’s application to the lender for the loan commitment triggers the underwriting of the borrower and the eligibility evaluation of the condominium. Contract financing contingency language typically provides 30 days for this to occur and unless met or extended, the borrower’s financing contingency can lapse.

Project Review and Financing Contingency

Contract financing contingencies do not carve out an exception to a lender’s project review. The typical condominium contract form financing contingency language provides a borrower with the ability to obtain a loan commitment in the amount sought which can include “other customary commitment terms” but is not “conditioned upon factors other than an appraisal satisfactory to the Institutional Lender.” The lender, borrower, and borrower’s counsel must know if the project is approved and have the loan commitment letter issued, free of any project approval condition, before the financing contingency has lapsed; otherwise, the loan financing contingency is waived as is Borrower’s right to a terminate the contract with a return of the contract deposit.

Importance of Meeting Loan Commitment Contingency

The lender needs to assess risk, if any, concerning the secured collateral and whether the loan and the secured collateral meet their own risk policies and/or GSE guidelines.  The borrower needs to know, within the set time period of their contract, whether their loan commitment contingency is satisfied.  The borrower’s counsel needs to protect his or her client under the contractual financing contingency provisions.  And all of this typically must occur within 30 days of an executed contract of sale.

Experience of PREP Principals in Condo and Coop Project Review

These are the issues that make the PREP Report critical in condo financing.  Traditional project review methods don’t always fully, or properly, address and evaluate the complexities found in condominium project review. PREP uses multiple data points that provide a more comprehensive project review for lender analysis and risk assessment, either for portfolio or secondary market compliance. Given the more than 60 years of combined experience of PREP’s principals, in particular concerning condo and coop project review, PREP knows what is necessary to address project risk and answers the question quickly and with certainty as to whether there is lender risk concerning the secured collateral under portfolio or GSE guidelines.   This ensures that the borrower knows their loan commitment contingency is satisfied and Borrower’s counsel knows his or her client is protected under the purchase contract.

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