What if I my buyer’s mortgage does not go through?

November 8, 2018 - 5 min read

In this article:

Your home sale just fell through. Often, the cause is a buyer’s inability to close on a mortgage. Inspection issues, a low appraisal, or cold feet can also kill a deal.

  • You may be entitled to keep the buyer’s earnest money — check with your title company
  • You’ll have to replace your buyer asap
  • If you have backup offers or others who expressed interest while the home was in escrow, now’s the time to contact them

You might be a little gun-shy after losing your buyer. But re-marketing a home is easier than starting all over.

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One step back, two steps forward

Home sales aren’t a sure thing. In fact, nearly 4 percent of sales fell through in 2016, according to real estate sales site Trulia. That number may suggest that the risk is low. But it’s important to remember that it can happen.

“I have six homes for sale right now as an investor,” says Mark Ferguson, member of the Forbes Real Estate Council. “Three of them had at least one contract fall apart.”

A number of reasons can destroy a deal. These include:

  • Your buyer’s mortgage may not be properly approved
  • The home may not appraise for the purchase price
  • A home inspection could reveal problems
  • Your buyer doesn’t meet the loan contingency deadline
  • Problems with the title arise
  • The buyer makes bad financial decisions or loses a job prior to the closing date

Related: What's a contingency in a home purchase contract?

You have options

The good news is that you have plenty of choices after a contract fails. Among them:

  • Retain the earnest money
  • Contact other prospects
  • Get a new appraisal
  • Repair and improve your home
  • Tweak the sales price
  • Get a new agent

Related: How to fire your real estate agent

Try to keep the earnest money

If your buyer backs out and violates the terms of your contract, you may be able to keep the earnest money. But check with your title company, agent and attorney for sure.

“Your contract should describe the circumstances under which the earnest money is refundable,” says real estate attorney Elizabeth A. Whitman. “If the buyer isn’t entitled to a refund, you should make a written demand for release of the earnest money.”

But every state has different rules when it comes to earnest money forfeiture.

“For example, it’s very rare for a seller to get to keep the earnest money in Colorado,” says Ferguson. “Here, the buyer can cancel almost any time for any reason and get their money back.”

Related: How to get out of a real estate contract

Contact other prospects

As the adage goes, when one door closes, another one opens. Just because your buyer walked away doesn’t mean you can’t find another one relatively soon. Ask your agent to contact any other potential buyers who previously viewed or visited your home for sale.

“When a house falls out of contract, we always email all the agents who set up earlier showings,” says Ferguson. “Also, we’re careful to mention why the home fell out of contract, as some buyers may assume it was an inspection problem. Let’s say the reason was the buyer’s lender. If so, we state that it was due to no fault of the house.”

Be sure your next buyer provides a loan preapproval letter. This indicates that the buyer’s mortgage will likely be approved and the deal with go through.

Related: How long does it take to get pre-approved for a mortgage?

Get a new appraisal and/or inspection

Bruce Ailion, Realtor and real estate attorney, says it’s smart to have your home professionally appraised. This should be done even before you list your home. But it should probably be done after a buyer backs out.

If your buyer had your home professionally inspected, try to obtain a copy of that inspection report.

“Find out what issues the inspector identified. Then, determine the cost of remedying these concerns,” suggests Whitman.

If your buyer didn’t have an inspection completed, have it inspected now.

“These steps will at least identify potential issues with your home ahead of time,” says Ailion. “You can fix any of these issues before your next buyer sees the home.”

Related: What to do when a low home appraisal ruins your sale

Repair and improve your home

If the buyer’s home inspection revealed any problems, work to get them resolved. Fix any items in disrepair noted by the inspector. Also, address any concerns noted by the buyers or their agent.

Consider freshening up your home with a new coat of paint. And improve curb appeal with better landscaping, a new door, or other quick fixes.

Related: Should I bail after a really bad home inspection?

Re-list and reduce your asking price

Once you’re ready, you’ll want to put your home back on the market. Ideally, your agent will market your home as a new listing. The advantage here is that your home’s days on the market resets to zero. But this may not be possible.

“Check your listing agreement contract,” says Whitman. “Most multiple listing services have rules about when a home can be marketed as a new listing. Usually, the agent will not be able to market the home as a new listing under the old brokerage agreement.”

Also, to ensure your home gets sold, you might have to lower your list price. This is a good idea especially if you don’t want to pay for any of the repairs suggested by the home inspector. Talk with your agent about the best pricing strategy.

Related: Selling a home (When should you reduce the asking price?)

Get a new agent

Not satisfied with how things have turned out? Maybe it’s time to let your real estate agent go and choose someone else. But you’ll need to check you’re the contract you signed with your agent first.

“If your contract is still in effect, you must stick with your current agent. But if it has expired, you can choose another agent,” Whitman notes.

If the contract is still valid, you can ask your agent to break the contract. He or she might agree rather than work with an unhappy seller.

But ponder this move carefully. Perhaps your agent nudged you into a bad deal that led to the buyer backing out. Or maybe the deal collapsing had nothing to do with your agent’s efforts.

Related: How to hire the best selling agent

How to avoid future problems

It’s important to keep things in proper context. If your deal collapses, it’s not the end of the world. Be patient and positive.

“Panic will not fix anything,” says Ferguson. “There’s not much you can do to force a buyer to continue if they do not want the house. It’s best not to dwell on the past. Move forward and work hard to get your home sold.”

Because one of the major reasons home sales fall through is the inability of the buyer to close on a mortgage, it’s key that you only accept (or at least give preference to) cash offers or those which come with a pre-approved mortgage.

That’s not a mortgage pre-qualification. Mortgage lenders issue pre-qualification letters all the time without checking the buyer’s credit or verifying anything. A pre-approval, on the other hand, is almost as good as cash. The lender has verified the buyer’s finances and credit, and the loan can close as long as the property meets the lender’s guidelines.

Time to make a move? Let us find the right mortgage for you

Erik J. Martin
Authored By: Erik J. Martin
The Mortgage Reports contributor
Erik J. Martin has written on real estate, business, tech and other topics for Reader's Digest, AARP The Magazine, and The Chicago Tribune.