There are many reasons why a bank will refuse to fund a portion, or all of your co-op or condo loan after the loan commitment letter has been issued to a borrower. It is crucial that your real estate contract protects your down payment when the bank pulls the rug out from under you. The percentage of units owned by the sponsor or the ownership percentages of other individuals or companies in the building, the amount of money that the board has in its reserves, or the bank’s own financial condition, may result the banks decision to reduce the amount of money that it will lend, or refuse to fund the loan altogether.
The mortgage contingency clause in your real estate contract has to carve out exceptions that will permit you to get your money back in the event that circumstances beyond your control result in the bank refusing to fund your loan. The risk that the “building” you want to buy into is not up to snuff with your lender’s requirements (and more importantly those of Freddy and Fanny Mac) should not be a risk borne by the purchaser. Make sure that the mortgage contingency clause in your real estate contract will get you your down payment back in the event that “building” issues result in your bank not funding your loan.
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