Sellers: What to Do When Your Buyer’s Loan Falls Through

What’s a savvy home seller to do if your buyer is not approved for a mortgage? Follow this advice from real estate expert Tara-Nicholle Nelson.

Everyone thinks about how hard the credit crunch has impacted homebuyers. We hear horror story after horror story about buyers who were in escrow when their loans fall apart. But no one really thinks about the others affected -- the sellers on the other side of these deals. While the buyers are definitely hurt, sellers often have two deals (their sale and their purchase of the next home) at risk when a loan falls apart. That’s right -- double the panic, double the drama.

I Know the Feeling. It’s easy to catastrophize about a buyer’s loan issues breakup-style, thinking, “the only buyer I ever had is gone forever,” especially if you waited a long time for that buyer to come along in the first place! If your buyer was approved, and their loan fell apart anyway, you might be as frustrated and gobsmacked as they are. And in this situation, you’ve probably never felt so powerless. Unless you can afford to finance the buyer’s deal yourself, you’re at the mercy of the buyer’s lender, the buyer’s employer and the buyer’s other financial qualifications. Talk about living in a global village (in a decidedly less warm-and-fuzzy way than we’re used to thinking about our interconnectedness).

Reset Your Mindset. Regaining your equilibrium when you’re knocked off balance by the buyer’s loan drama hinges on a quick recovery and working several different recovery strategies at the same time. Take the news in, then put your place back on the market so fast your neighbors’ heads spin at how fast that Pending sign rider comes down! Ask your Realtor to enlist their own mortgage resources to see if the deal can be salvaged by helping the buyer get a loan.

While those two strategies are working, take a moment to process this turn of events and mentally reposition what has happened. If it’s still early in the transaction, take solace that you found out the deal was a no-go before your place was off the market too long. If it’s later, say, after the buyer removed contingencies, you can use the buyer’s forfeited deposit to make a mortgage payment or get the new carpet your Realtor suggested would help the place sell.

If your next buy is dependent on this deal, do what you can to buy as much time from that seller as possible. Beyond that, there’s not a whole lot you can do, short of taking on two mortgages (which your lender probably won’t allow, anyway). So, prepare yourself for the possibility that you might have to let this one go and restart your house hunt if you can’t get yours sold in time to perform on your purchase. If nothing else, you’ll prevent yourself from having another nasty surprise to deal with.

Your Drama-Free Real Estate Rx. After going through the high-drama of having one buyer back out, your mission should be prevention for the next go-round. Have your Realtor vet future wanna-be buyers’ loan qualifications before you accept their offer, and don’t start loading the moving truck until your next buyer removes their loan contingency or even signs their loan docs!

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