Mortgage Loans, Obtaining An Extension To Protect Earnest Money

Published: 17th November 2009
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When you are buying a home and have made an offer for the home you will have to pay a fee called earnest money. This earnest money may be as little as $500 or $1,000, but in especially active home markets it can range as high as 5% or more of the purchase price.

Your earnest money, essentially, binds you to the purchase. Once you

have paid the earnest money one of two things can happen. First, you

close on the mortgage loan and the earnest money is applied to your

closing costs. Or second, you do not close on the property and the

seller retains the earnest money.

The purpose of earnest money is to ensure that properties are not tied up in frivolous offers. If someone makes an offer on a home, the seller cannot entertain any other offers. An offer that is not serious could result in the seller losing an opportunity to receive a real offer and sell their property. The earnest money discourages offers that are not serious.

Before you ever make an offer on a property you should have already

obtained a pre-qualification for your mortgage loan at a specific

amount, and then shop for homes within this range. Failing to pre-

qualify for your loan can put any earnest money you pay at serious

risk. It may take significantly longer to obtain a loan, or you may not be able to obtain the loan at all. If that occurs you would forfeit your earnest money.

If you find yourself in a position of approaching the deadline for

receiving your earnest money back, and your loan is still pending, still being worked on by the lending institution, you can file real estate forms called a mortgage extension letter. Your real estate contract will detail the contact method you must use to notify the seller. It may be by fax or you may have to mail the extension. Be sure that if you do have to mail it, you do so with plenty of time for it to arrive and use a signature verification of delivery from the post office.

You can have your real estate attorney draft your extension letter, or you can just write it yourself. The extension letter should contain the following:

- Your Name and full address.

- Your Fax number and telephone number.

- The seller or seller's attorney's name.

- The Seller or Seller's Attorney's full address.

- The Seller or Seller's Attorney's phone number or fax number.

- The address of the property you are buying.

- A statement that at the time you do not have a loan commitment

firmly in hand.

- A specific request that the date of the loan contingency be extended to a certain date. Tell them what date you want the new contingency expiration to be.

- A statement of the date, on or about, which you anticipate being able to close on the property.

- The name of the mortgage lender working on your loan.

- The name of the loan officer handling your case.

- The loan officers phone number.

- The status of the loan (explain what is delaying the approval).

- Ask the seller to sign and return the extension letter if they agree to the extension.

- Demand return of the earnest money if they do not agree to the


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