5 days to close and buyers financing fell through

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5 days to close and buyers financing fell through

Gregg Fritz
Mukwonago, WI · Member since 2016 · 5 posts · 0 votes

We were moving merrily along the process... i got my final loan approval on our new home.  My entire 4500sq ft house is packed up in boxes in the garage, movers are scheduled, hotel arrangements made, mailing address changed, kids pulled out of school, etc...  We were to close on our current home on the 30th of this month and our new home the 31st as we are also moving out of state due to a transfer.  We got an email last night that the buyers financing ran into a "glitch".

We are told they are seeking another lender, but are waiting to see if their lender can remedy the situation... however they are confident we will not close in 4 days as previously committed. We will know more on Monday.

The buyers have no home, they were pre-approved, and everything checked out perfect... inspection, appraisal, etc... We have been packing for weeks :( If we now have to stage our home again for sale we have to first find the stuff, and unpack...

This is a nightmare.

How the heck can a lender pull out financing so close and with zero indication this would happen? We figured our home sale was a done deal, and were doing everything we could to get ready on time.  

I'm beginning to think that the house we are dreaming of to buy is not in our cards, and we should just get our house sold and move into an apartment until we can find something.  There is no way we could go through this torture again.  The logistics of trying to sell and move in to your new home right away are too hard when all your cash is in your home sale to buy a new home.

Any advice on this?  We don't earn enough to float two mortgages as the new one without a down payment would be a jumbo loan so our current home has to sell.

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y

@Gregg Fritz  its never done until its done.  and or you have a clear to close from the lender.

for a myriad of reasons.

1. their MLO is not very sharp and should never have pre approved them in the first place

2. they are using an out of state lender that gives one's fits.  Like Quicken ( won't sell new construction homes that I build if buyer is using quicken.

3. the buyers being not so swift went and bought something during escrow that changed their ratios

4. the buyers lied about their financial situation and it has come to light.

We are pretty fortunate out here on the WEst coast we get almost zero sale fails from lenders not closing.  I have had it happened to me numerous times in the mid west.. for all of the above reasons.

And I agree it makes it very difficult to do the sale then move to new home when you can't count on closings like you can in other areas of the country.  Most that are in this game though won't pack until they get a clear to close.. your buying another home you have to risk.. you probably Have EM out on that new home.. hopefully you have some EM from your buyer and your contract does not state they get it back if for some reason there loan is denied ( pretty typical)

good luck

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  • Patrick LiskaPro Member
    Investor · Verona, NJ · Member since 2014 · 1k+ posts · 832 votes
    10y

    This stuff unfortunately happens, when i bought my first house ( current one we live in ) we didn't know we were approved until we were sitting at the table to do the closing, our Lawyer had to call and get it straightened out so we could close. if it does not go through, why not try and rent it, then the new tenants furniture will be staging it for you. or see if you can find an investor or wholesaler that may want to purchase it, you may not get as much as you originally listed it for, but you will sell it. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Gregg Fritz  its never done until its done.  and or you have a clear to close from the lender.

    for a myriad of reasons.

    1. their MLO is not very sharp and should never have pre approved them in the first place

    2. they are using an out of state lender that gives one's fits.  Like Quicken ( won't sell new construction homes that I build if buyer is using quicken.

    3. the buyers being not so swift went and bought something during escrow that changed their ratios

    4. the buyers lied about their financial situation and it has come to light.

    We are pretty fortunate out here on the WEst coast we get almost zero sale fails from lenders not closing.  I have had it happened to me numerous times in the mid west.. for all of the above reasons.

    And I agree it makes it very difficult to do the sale then move to new home when you can't count on closings like you can in other areas of the country.  Most that are in this game though won't pack until they get a clear to close.. your buying another home you have to risk.. you probably Have EM out on that new home.. hopefully you have some EM from your buyer and your contract does not state they get it back if for some reason there loan is denied ( pretty typical)

    good luck

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    10y

    It happens, and @Jay Hinrichs gave some great examples of what can derail the process. One of the important things often overlooked in selling your home, isnt just taking the best offer....but also taking the most qualified buyer. Are they putting down 3% or 25%. What does their financial situation look like.  Are them employed by someone stable like the federal government, or are they employed by a company in the midst of layoffs. Are their credit scores in the 700's or are they hovering around 620. Ive often left a little bit of money on the table to take an offer from a well qualified buyer over a marginal buyer.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Russell Brazil  great points to get into the details of buyers financials a little .

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    10y

    It's a moot point now but did you get in the beginning the right for your broker, attorney, your mortgage broker, yourself to be able to talk to their mortgage broker or their lender directly?

    If you do not have this you are depending on what the buyers broker/agent and the mortgage person is saying. Many times they can leave out key details on the purchasers.

    Right now you are looking at making a life altering decision and you do not know what the exact issue is with the borrower currently. Based on the issue you could learn how long to possibly remedy it and what percentage of success is reasonable.

    Financing kills deals. I know on my commercial deals I hyper focus on the finance. People do not give financing the correct attention it deserves in a transaction. It can make or break a deal every time.

    People want to talk about  a property when they contact me. I always want to talk about how they are wanting to finance the purchase and structure.

    To consider any extension from this borrower you might make a condition that you are allowed to speak directly to their lender in writing so you have total transparency of what is going on. 

    No legal advice given. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Joel Owens  there is a reason those of us in the Building business use certain lenders ONLY...

    Same with turn key companies.. they know who will close and there are so many MLO's out there that just are not ready for prime time.. and agents in the HOme selling setting usually are not quite as diligent or sharp about financing they just assume.

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  • Gregg Fritz
    OP
    Mukwonago, WI · Member since 2016 · 5 posts · 0 votes
    10y

    Thanks for the advice. I think once we know more on Monday we are better equipped to work with the buyers. The buyers are/were doing a 100% VA financed loan with an out of state lender. My mortgage broker was concerned about this offer but as we didn't hear any news we all thought it was going well. This bad news bomb fell last night on us, and we were to close this coming Wednesday. Their realtor thinks they may only need a 2 week extension, however there is the obvious concern they won't be able to close at all.

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    10y

    And people wonder why we insist on buyers getting preapproved by Our lender, whether or not they use them.  In just talking to "their" lender you don't really know if they got actual tax returns, verses w-2's (and then they claimed $20k in expenses, lowering their Actual income), how long they've been employed, have "credit issues" they supposedly can fix in 2 weeks, etc., etc.

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  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    10y

    PSA: It's not "real" until docs are in title. 

    Do not schedule movers, put anything in boxes, or really do anything else, until docs are in title.

    If I thought every loan originator out there was 100% honest, I would say that it's "real" once you are told that the borrowers have "clear to close." Using "docs in title" as the metric is a hedge against loan originator dishonesty. 

    If you or your realtor has worked with the loan originator before, or you otherwise have specific reason to trust him, you can start scheduling movers, etc, based on being told you have CTC.

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  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    10y
    Originally posted by @Wayne Brooks:

    In just talking to "their" lender you don't really know if they got actual tax returns, verses w-2's (and then they claimed $20k in expenses, lowering their Actual income), how long they've been employed, have "credit issues" they supposedly can fix in 2 weeks, etc., etc.

     This is true.

    I often overcome this objection by texting a picture of the 2 inches of paperwork in the loan file I required from the borrower to get a preapproval letter. :) My general goal is that once someone goes into contract, all I have to ask them for is updated paystubs and bank statements and to put their signature on paperwork I generate.

    Know that homebuyers will often feel that there is shady business afoot if you actually require them to use "your" (as the seller or listing agent) lender. I personally refuse this type of business because I don't want to do loans for people that don't actually want me doing their loans. If it feels shady to any involved party, I want no part of it (even if it's just a feeling). I will go for "get preapproved with Chris here," but I will not go for "you MUST use Chris here for your loan." YMMV.

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  • Percy N.
    Developer · Philadelphia, PA · Member since 2015 · 2k+ posts · 904 votes
    10y
    Gregg Fritz if you do find out the reason the lender did not come through, there may be things you can do, if you so choose, to help the deal close. E.g you can contribute (up to 6%, at least in PA) towards closing. You may even be able to offer seller financing as a second mortgage for say 7-8% Again, this all depends on the situation at hand and your risk tolerance.
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  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    10y

    As others have already pointed out, unfortunately it does happen. Often times it's because the lender dropped the ball or missed something a long the way. This shouldn't happen in the 11th hour. Did they buyer give any reason for why it fell through?

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  • Gregg Fritz
    OP
    Mukwonago, WI · Member since 2016 · 5 posts · 0 votes
    10y

    We will know more Monday.  The buyers realtor phoned the lender but they were tight lipped... I feel everyone is being very tight lipped.  All we know is there is some "glitch" and they are anticipating needing an extension to close...  Honestly, I only received my loan approval a week before close - there is no way you could wait for that paper to pack - you would never do it in a big home.  4500 sqft, 3 kids, and 10 years.... it took us 3 weeks to pack.

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  • Gregg Fritz
    OP
    Mukwonago, WI · Member since 2016 · 5 posts · 0 votes
    10y

    So the short of the long...

    Buyers used fly by night out of state lender to get pre approval.  The lender specializes in bad credit loans to veterans.  essentially, they pre-approve anyone in the hopes that 20% of them actually qualify.

    Lesson learned:  never accept an offer from a buyer with out of state lender.

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