The majority of residential real estate financing in Illinois is loan contingent (mortgage) or cash (no mortgage), with variations as to each. This post focuses on the financing options as used in the Multi-Board Residential Real Estate Contract (“MBRE”) 7.0. The following are three types of financing used in the MBRE 7.0:
Loan Contingency (Paragraph 7(a) of MBRE 7.0):
If the parties agree that the transaction will be subject to a Loan Contingency (mortgage), the buyer is only required to purchase the property if they are able to meet all the terms of the Loan Contingency. The Loan Contingency provision protects a buyer from having to purchase real estate when they don’t qualify for the agreed upon loan terms (or better, with some terms), including: (a) the percentage of the purchase price to be borrowed; (b) the maximum interest rate for the loan; (c) whether the rate is fixed/adjustable; (d) the specified period of time for loan repayment; and (e) the maximum amount of ‘points’ to be paid by buyer.
If the Buyer is unable to provide loan approval and serves notice to the Seller by the ‘Loan Contingency Date’, the Contract shall become null and void. The default ‘Loan Contingency Date’ is either 45 days after the date of acceptance or 5 business days prior to the date of closing, whichever is earlier. Although, this date can be modified during the Attorney Review, or may be extended by mutual agreement of the parties.
Cash transaction with no mortgage (Paragraph 7(b) of MBRE 7.0):
This should be selected if the buyer wants to pay cash (no mortgage loan). It also has the added benefit of splitting the escrow fee between the buyer and the seller (unlike when financing with a mortgage). A seller may ask the buyer to verify they have the requisite funds to purchase the property, and the buyer may be required to provide financial information to verify those funds. This option can be used when a buyer has sufficient money to cover the purchase, and when acquiring property that may be difficult to obtain with a mortgage loan. Unlike the Loan Contingency, the buyer is generally obligated to purchase the property, regardless of their change in financial circumstance.
Cash transaction, mortgage allowed (Paragraph 7(c) of MBRE 7.0):
This option may be selected if the buyer has the funds to purchase without a mortgage, but would like to have the option to purchase using a mortgage loan. Regardless of whether the buyer is able to qualify for a mortgage/loan, he or she is still required to purchase the property. Some buyers that have the cash available to make the purchase, but would like to explore the option of a mortgage may choose this option. It may appear as a stronger offer to the seller, since they know the buyer will not be able to back-out for inability to obtain a mortgage loan. The escrow fee will be split between the seller and buyer if purchase without a mortgage loan, otherwise the buyer will pay the entire escrow fee.
If you are unsure about your obligations/rights pursuant to the selected financing, or would like to speak with an Attorney regarding your real estate purchase/sale, please contact Blume Law
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