In this highly competitive seller’s market, some home buyers are choosing to purchase their house, condo or townhouse non-contingent, meaning with no contingencies for inspection, loan, appraisal etc. . The “non-contingent offer” has been present in the Silicon Valley real estate scene for a few years (since 2012 or so), to the horror of those of us working in the field in 2000 and the years immediately after (it’s a very bad deja vu, given the onslaught of lawsuits that came in its wake last time). My clients sometimes make this choice, too, explaining to me that they feel it’s the only way to get the property.
With no loan contingency to protect the buyers should the loan not come through (or fail to do so in time), some consumers are electing to “double app” the loan. Translation: they pursue financing with two or more lenders simultaneously (fill out two loan applications, pay for two appraisals etc.). Lenders, naturally, don’t like this because only one of them has the possibility of closing the sale or the loan, and only the one who closes the loan will get paid. In a normal market, with normal contingencies in place, I would not recommend this approach. But if there are no contingencies to protect the buyer, a second loan may provide a safety net as it increases the odds that a loan will be funded so that the home can close escrow.
If you want to double app the loan, it is important to be very honest with both lenders so that no one feels that he or she is wasting their time. Often there is a preferred lender in place, but another lender has a better rate or terms. In that case, you may want to try to get your preferred lender to try to match the better rate – but of course sometimes the folks with the better rate are big on promises and not so big on delivery. So one factor to weigh heavily is the odds of closing on the deal. If the lender with the better rate understands the situation, he or she may be willing to try to win your business and will appreciate your loyalty to the one you have in place. But if you want both lenders to work enthusiastically on your behalf, they must feel that you are being fair and honest with them, so transparency is key.
Additionally, the listing agent (the seller’s Realtor or real estate salesperson) must know about the double app because two different appraisals will be ordered (and you’ll pay for both), so the appraisers will both need access to the home – and not at the same time.
Pros and Cons of Double Apping the Loan
The pros are simple:
- you have a second loan being sought in case the first one doesn’t go to closing
- you may have better rates and / or terms because of the competition
- you may feel a little more peace of mind that you have a good rate and better odds of not failing to close and potentially losing your deposit
The cons are an issue too:
- you will be paying for 2 loans although only getting one (the appraisal, credit report etc.)
- it’s possible that a lender may not work wholeheartedly for you if he or she thinks that you are not going to close the loan with him or her
I look forward to a more balanced market in which buyers retain all of their rights and there’s no need to double app the loan. But for now, I’m trying to put safety nets in place as much as possible when my clients decide to go into escrow non-contingent.