New Loan Termination Deadline

Jul 7, 2021 | Home Buying Tips

When buying and selling real estate in Colorado, the parties involved need to be acutely aware of the dates and deadlines contained in the contract. This is especially important because these deadlines must be kept for the buyer to maintain their claim to earnest money.

Tracking the deadlines on multiple offers can be tedious, but that is why it’s so important. The more offers you place, the more likely it becomes that an oversight could cost you big money. One deadline that is particularly important to the buyer is the New Loan Termination Deadline [NLTD], so let’s discuss what it is, why it’s so important, and how it can even hurt your offer in a competitive market.

What is the New Loan Termination Deadline [NLTD]?

The NLTD is for the sole benefit of the buyer in determining whether their new loan is satisfactory to their needs and estimate. This includes interest rates, terms, payment and overall cost. To be exact, the contract states:

“If Buyer is to pay all or part of the Purchase Price with a New Loan, this Contract is conditional upon Buyer determining, in Buyer’s sole subjective discretion, whether the New Loan is satisfactory to Buyer, including its availability, payments, interest rate, terms, conditions and cost. This condition is for the sole benefit of Buyer. Buyer has the Right to Terminate under § 25.1, on or before New Loan Termination Deadline, if the New Loan is not satisfactory to Buyer, in Buyer’s sole subjective discretion.”

Obtaining a Pre-Approval Letter is First Step

The date for the NLTD is typically 20-30 days out from contract date. When the process of shopping for a home begins, the buyer’s first step is to obtain a Pre-approval Letter from their bank or lender. The lender will gather basic information on the mortgage application such as credit, income, liability and assets. Then, they can match the buyer to a loan that meets their needs.

The lender will issue a Pre-approval Letter and an Preliminary Closing Disclosure showing the estimated interest rate, monthly payments, and cash needed to close. However, these terms are not set in stone until all documentation goes through underwriting.

Why the NLTD is Necessary

Once a buyer has a house under contract, the lender will ask for more documentation of credit, income, assets and liabilities. These documents are sent to underwriters who go through the requirements of the loan and match them with the documentation on the buyer’s application.

Occasionally hiccups can occur in this process due to changes in the finances of the buyer. For example, proof of income or tax returns might not match up with what was stated on the application or a new car purchase could have inflate the buyer’s debt-to-income ratio. In any event, these hiccups can change the interest rate, down payment, terms or cost of your loan from the Preliminary Closing Disclosure you received before going under contract.

Buyers Protection Under the NLTD

The NLTD protects the buyer if, after going through underwriting, the terms of the loan have changed to a point where they are no longer satisfactory to the buyer. Under this provision, a buyer may terminate the contract and get their earnest money back without penalty – if the termination is sent before the NLTD.

For a buyer to gain the most benefit from a NLTD, they should put this deadline as close to the loan closing as possible. This serves as a safety parachute to get out of the contract without losing earnest money, should there be any of the mentioned extenuating circumstances. But be careful. It is not always the best idea to have a NLTD affixed to a contract – especially when you are competing with lots of other offers.

Downside to the NLTD

In a competitive market like the current one in Denver – where buyers are going so far as to waive appraisals – having a very long NLTD can make the offer much less attractive. This is especially true considering it is not uncommon for buyers in a competitive market to waive this contingency all together.

For a seller, we like to see the shortest NLTD as possible and prefer it waived. If there is a NLTD, we like for it to coincide with another deadline like Inspection Resolution Deadline or Appraisal Deadline. This way, the property is not off the market for very long in the event the buyer terminates the contract.

Contact the Property Consultants at Sophisticated Properties

At Sophisticated Properties, we’re more than just realtors™. So, if you are buying, selling, or looking to lease your luxury property in the Greater Denver Area, give our property consultants a call.

We can help you determine whether selling or leasing your luxury property makes the most sense. If you decide to sell or lease, we can provide quality buyers and tenants, and this makes life easy for you.

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