Note: This is a chapter in my new ebook called The Ultimate Guide to Buying (and then Selling) Your First Home. I will post a chapter a week. If you like what you read, you can pick up a copy here for the price of a candy bar! Buy a candy bar or be a real estate guru! The next chapter is where we go over what can wrong on a deal after the repair request has been signed. The last chapter to be shared on this blog you can find here.
Steve sent me a text the next day that read, “I am so glad that is over. Now we can focus on moving to our new home.” I groaned internally when I read this from Steve. Most sellers think that once you get past option, the deal is done, but that is far from the case. I called Steve that evening to discuss next steps. I told him. “As I have mentioned earlier, when selling your home, you will want to favor cash deals because of the large number of ways finance deals can fall apart, sometimes within a week of closing. You got a finance deal with this buyer.” I could hear Steve sigh. He asked me to remind him of what might happen. I responded. “Financing a home used to be so much easier. In fact, it was so easy that many people got into homes too easily and we ended up in the financial crisis of the late 2000s. Mortgage companies and banks are much stricter now. With this new level of scrutiny, some seemingly good deals on paper can fall apart when the financing is not approved.” We had a preapproval letter in hand and I had called the mortgage professional to get a lowdown on the buyers, so I felt comfortable enough that the deal looked good to close. However, there are still things that could go wrong. Here are three examples that I told Steve directly.
1.Buyer’s financing is not approved – Steve was astonished to hear this first one. He asked haven’t we already received the preapproval letter. I replied. “As insane as this sounds, some buyers will not be truthful with mortgage companies during their first initial application process. Buyers will want to get approved, so they can get into their dream home and will say anything at the outset to get the mortgage. Some buyers have been known to lie about employment, their income levels and even cheat with their checking accounts by placing a large sum in their accounts. All of this to sway the bank to approve the loans.” Steve said he could see someone doing this, but didn’t the buyers know that they would get caught in the end. I said most of them will always get caught, although some mortgage professionals catch it sooner than others. I have had deals fall apart the day of closing because the bank could not give the final approval to wire the funds.”
2.Buyer’s credit rating changes – Yes, Steve said he remembered my lecture when they were buying their house about a “spending vacation. I replied that it is unfortunate that not all buyers get this advice. “Some buyers will go crazy on buying “stuff” for their new home when the initial approval has been completed. When this happens, the buyers don’t get approved for the loan because they go through the same credit review later in the process as they did in the beginning. In fact, many banks will check it the week of closing. If large purchases have been made, the buyer’s credit will have been impacted, even to the point of losing the mortgage approval. “
3.Buyers could be lazy – For this last point, I reminded Steve how much time and effort it took to get their mortgage approved. I told him. “Mortgages are lot of work. They are also very invasive. If your buyer is not the most organized individual, or the most responsible, then delays can happen during the mortgage approval process because of things like not turning in the required paperwork when requested. Some buyers will fight some of the requests as they see it as an invasion of their privacy, further delaying the process.” Steve asked how this can ruin the deal. I told him that closes can be extended, but how many times do you want to extend the closing until you give up on the buyers ability to get the loan.
Steve joked with me at this point that I couldn’t even let him have 24 hours before hitting them with the doom and circumstance if a buyer has issues with getting a mortgage. Steve told me to lighten up while laughing. I laughed with him and reminded him that there would be times where he didn’t like me very much, but I felt I was obligated to share this kind of information to lighten the blow later if it should come. Steve said he agreed and thanked me for the heads up, but he didn’t see an issue with the buyers they had selected. I silently crossed my fingers hoping that Steve was right. I told him I would call him as soon as I heard about the appraisal. Steve said he looked forward to it.