Arizona Real Estate Power Hour – Summary of Section 2 of the Arizona Purchase Agreement – Part 1-2

Website design By BotEap.comIn this article we are going to discuss the second section (FINANCING) of the Arizona Residential Real Estate Purchase Agreement for Resale. The FINANCING section is used only if the buyer plans to obtain a loan to pay part of the purchase price. For all cash transactions, the FINANCING section is omitted.

Website design By BotEap.comPlease note that this article applies only to the Real Estate Purchase Agreement in use in Arizona. For information on Real Estate Purchase Agreements in use in other states, check with each state’s Association of REALTORS.

Website design By BotEap.comThe FINANCING section has 11 subsections. We will cover the first 6 subsections in this article and the remaining 5 in part 2.

Website design By BotEap.com2a. loan contingency – this is probably one of the most important clauses of the entire Purchase Agreement. It states that buyers will not be required to complete the sale if they cannot obtain the loan to purchase the property. One important point is that buyers will need to provide a Loan Status Report (also known as an LSR) when they submit an offer to purchase the property. The LSR describes in detail the type and terms of the loan for which the buyer is pre-approved. The buyer is obligated to search for the specific loan with the lender who signed the LSR. If buyers change loan product or lender and are unable to obtain the loan, they will not be able to use the loan contingency to cancel the contract.

Website design By BotEap.com2b. Unfulfilled loan contingency – establishes that the contract can be canceled and the buyers will be entitled to receive a refund of the deposit if they cannot obtain the loan. It is important to note that buyers will need to show that they did everything possible to obtain the loan. Not having the down payment and other funds to close the transaction; o failure to provide the required documentation to the lender is not a defaulted loan contingency; and, as a result, cannot be used to justify cancellation of the contract and refund of the security deposit.

Website design By BotEap.com2 C. appraisal contingency – another important clause to protect buyers. If the property is not appraised for at least the sales price, the buyers are not required to complete the transaction. Buyers will have the right to cancel the contract and receive a refund of the security deposit. Buyers have five days after notification of the appraised value to cancel the contract. If they do not cancel the contract within that period, the appraisal contingency will be without effect.

Website design By BotEap.com2d. Loan Status Report – LSR is a document issued by the lender that shows that the lender has pre-approved the buyer for the loan product and the amounts described in the LSR. This subsection includes language to incorporate the RSL into the Purchase Agreement.

Website design By BotEap.com2nd. Loan application – establishes that buyers must complete their loan application within five days after acceptance of the Purchase Agreement. Buyers must (1) complete, sign, and deliver to the lender a loan application with the requested disclosures and documentation; (2) give the lender permission to access the buyer’s credit reports; and (3) pay all loan application fees.

Website design By BotEap.com2 F. Loan Processing During Escrow – requires buyers to work diligently during the escrow period to provide the lender with additional information and documentation needed to obtain the loan. This subsection also authorizes the lender to provide loan status updates to all real estate brokers involved in the transaction and to sellers.