What To Do When Your Buyer Is Turned Down for a Mortgage

You’ve accepted an offer on your North County home — congratulations! It’s exciting to know that the selling process is underway after all your hard work. But it’s important to know that there are some things that can derail the deal. One of the most common reasons is that your buyer ends up not getting approved for their home loan. So what happens next? Here’s what you need to know.

Reasons for the denial

In today’s North County market, buyers know how essential it is that they get preapproved for a loan before they put in an offer. While that gives you, the seller, a good indication that they’ll ultimately close on their loan, there are a number of reasons why it might not happen. They include:

  • The buyer’s income may have changed, such as becoming unemployed.

  • Their credit score is not as high as it needs to be.

  • Their debt-to-income ratio is too high.

  • They may lack the funds for a down payment.

  • The home has appraised for less than the offer.

Should you still try to close this deal?

It can be devastating to be so close to the finish line and have the loan fall through. If you’re worried that you won’t find another buyer, then you can decide to continue working with this one. You can give your buyer time to try finding another lender. Or if the appraisal came in low, you can renegotiate the offer and ask for a reappraisal. Be aware that we are in a seller’s market, though. Chances are, another buyer will be ready to jump on your home if it once again becomes available.

Are you obligated to return their earnest money deposit?

When the buyer signs their purchase agreement, they generally submit an earnest money deposit. This is typically up to two percent of the purchase price and it helps to illustrate that they’re serious about their offer. This money is held in escrow until the sale closes. But if your buyer loses their loan, then the earnest money deposit is released. Your purchase agreement will outline what happens to the earnest money should the sale not go through. It will often contain a financing contingency that states the earnest money is returned to the buyer if they don’t get approved for their loan. However, if there is no financing contingency, then you may be able to keep the money. When in doubt, talk with your agent.

What if you want to find a new buyer?

Fortunately, if your listing agreement is still valid then your home will go right back on the market and our team will work diligently to find you a new buyer. With today’s market as hot as it is, it should not take long to find other interested parties. In fact, you may even be lucky enough to already have a backup offer in place.

Contact the Clark & Gilman Team today!

When it’s time to sell your North County San Diego home, it pays to work with the experts. Contact the Clark & Gilman Team at 760-758-1211 or [email protected] today. We’ve been selling homes in North County since 1978 and we would love to help you sell yours!

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