Purchasing a home can be a lengthy and time-consuming process. By the time closing rolls around, you usually don’t have much else to do except sign a few papers and get your keys. But what if the mortgage fell through on the closing day, just as you thought you had everything under control? These things happen all the time, whether you like it or not.
Common Reasons why mortgage fell through on closing day
You’ve worked so hard to prepare your home for sale and get it on the market, but the last thing you want is for the mortgage to fall through on the closing day. Unfortunately, as a seller, many of the reasons a mortgage fell through on closing day are due to issues with the buyers. Learn why a pre-approved mortgage buyer failed to close on the closing date and what you should do if this happens to you. When you’re ready to sign for your house sale, the last thing you should be thinking about is what if your buyer’s mortgage falls through on the closing day.
One aspect over which you have little control is your appraisal. Getting your appraisal before putting the house on the market is a good way to ensure that the sale does not fall through due to a low appraisal. If you base your home sale price solely on the market; you may be surprised when the lender’s appraisal comes back lower than your asking price. If the home is worth less than the amount you are selling it for, the sale may be delayed or halted entirely.
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For the sale to go through, you’d have to lower your asking price, so the loan isn’t canceled, or the buyer would have to pay cash to make up the difference.
#2. Home inspection
Getting your home inspection report, like the appraisal, can help you uncover any surprises well before closing day. Your buyer may be working with a lender who requires a home inspection before approving the loan, and if that home inspection reveals issues; especially if the buyer and seller cannot agree on who should pay to fix them, the closing will be delayed.
To avoid this problem, get a home inspection before selling your home and either be upfront about any potential issues or take care of them before listing the home. This can be costly, but it can protect you from having a mortgage fell through on the day of closing.
Buyers’ remorse is a real phenomenon. A home is a big purchase for many reasons, not just the money, so if a buyer gets cold feet, they may back out at the last minute. The buyer will lose the earnest money they put down on the house, but if they are second-guessing themselves, losing a little money is preferable to making a decision they will later regret.
There is no way to avoid this type of issue; simply prepare to put your home back on the market in this scenario.
#4. Errors in documents
Even a misspelled name on all legal mortgage documents, believe it or not, can prevent a home from closing on time. The good news is that this type of issue will only cause a delay in the sale of the home while new paperwork is prepared.
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Be adaptable and avoid becoming too fixated on the closing date. Problems can arise at the last minute, but the home sale can still go through in some cases.
#5. Job loss or change
If the person purchasing your home loses their job or changes jobs between the time they are pre-approved for a loan and the time they close on the loan, the mortgage may fell through on the closing day. Pay stubs and employment verification are required for bank pre-approval, and changing jobs will restart the document-gathering process. A bank will frequently contact the seller’s employer on the day before closing to confirm their employment; if the seller loses their job in the interim, the bank will not approve the mortgage.
#6. Credit adjustment
If the buyer makes a large purchase (such as a car) or applies for more credit during the lending process, red flags will go up, and the lender will either stop or delay the closing date. When a buyer is pre-approved for a loan, it is based on the financial information they provided to the bank. A large purchase alters the debt-to-income ratio, alerting the bank that the borrower is at a higher risk of default because there is less money available to pay back the mortgage. This also applies to a seller who applies for more credit — this will lower the buyer’s credit score and may indicate to the bank that the seller is concerned about making all of their payments and may not be able to afford the house after all.
#7. Title issues
Any issues with your title could result in your mortgage falling through on the closing day. Do you have any contractor debts, liens on your property, or unpaid property taxes? Any of these title holdups will cause the closing to be delayed until they are resolved. The lender will conduct a title search to determine whether the title is clear or if any outstanding liens or claims must be addressed before closing.
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If you are aware of a lien or unpaid taxes, resolve them before selling. If you’re unsure whether any previous issues on your title have been resolved, contact your lender to ensure you’re in the clear before selling.
#8. Final inspection
In some cases, the final walk-through can be decisive. If you agreed to repair certain parts of the house and did not follow through, a buyer can legally back out if everything was documented in writing in the closing documents. If a problem arises during the closing process and something important breaks or is damaged, the seller will not be aware of it until the final walk-through and may change their mind. Buyers aren’t usually eager to buy a house that needs immediate repairs, so any last-minute issues could cause the mortgage to fall through on the closing day.
Avoid this problem by keeping any promises you made and ensuring contracts are drawn up during the closing process. If something major fails (air conditioning, basement flooding, etc.), notify the buyer immediately so you can work out a solution that works for both of you.
#9. Documents missing
The buyer is responsible for sending the lender a Closing Disclosure at least three days before closing. These documents outline the terms of the buyer’s loan and all closing costs, so if the Closing Disclosure is not received by the buyer on time, the closing will be delayed.
Fortunately, this is a simple delay, and your mortgage is unlikely to fall through in this scenario. All of these factors could explain why a buyer’s mortgage fell through on the closing day. You are now in a difficult position to sell your home, and I can assist you.
What Should You Do If a Buyer’s Mortgage Fell Through on Closing Day?
The unfortunate reality is that you have no control over your buyer’s financial behavior. Financial changes may make the lender nervous, whether they take out a large car loan, max out their credit card, or lose their source of income during the closing process.
You can protect yourself earlier in the home selling process by working with buyers who are pre-approved for a mortgage rather than pre-qualified.
Pre-qualification and pre-approval may sound similar, but pre-qualification is only the first step; whereas pre-approval includes a document review and a credit check. Neither, however, guarantees that the mortgage loan will be approved.
You can’t stop your buyer from deciding they need a brand-new car as the deal is closing. You cannot guarantee that they will not lose their job. One good news: if the sale falls through, you may be able to keep the earnest money deposit.
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If you find yourself in this situation, you’re back at square one, so you usually have two choices:
- Look for a new buyer.
- Wait for your current buyer to make a counter-offer.
- Alternatively, if you are in a hurry, sell to a cash home buyer.
If the buyer’s mortgage fell through on closing day or at any other point during the selling process, and you need to sell your house quickly, you can sell it to a buyer who doesn’t need financing.
Mortgage problems can occur, but they should not be the result. Take some time to figure out what went wrong and whether any of it could have been avoided. If it is possible, find out what you need to do to avoid those pitfalls in the future. If you can’t avoid it, don’t worry too much about your mortgage falling through. Utilize the resources at your disposal before the closing day arrives. Buying a home is likely to be the most expensive purchase you will ever make; so try to be as prepared as possible.
Frequently Asked Questions
How many days before closing do you get mortgage approval?
How many days before closing do you get mortgage approval? Between loan approval and closing on your new mortgage, federal law requires a three-day minimum. You could be approved conditionally for one to two weeks before closing.
Can anything go wrong the day of closing?
There may be instances where the buyer or seller loses interest or financing falls through. Other issues that can cause a delay in the closing process include homes in high-risk areas or uninsurability. There may be issues with the good faith estimate or other errors that may prevent the transaction from closing.
Do mortgage lenders pull credit day of closing?
It depends on your lender, but some pull credit immediately before final approval, which could be one or two days before closing.
Can your loan be denied at closing?
Having a mortgage loan denied at closing is the worst, far worse than a pre-approval denial. Although both denials are painful, they necessitate a different strategy.