Chapter 4 in our series: What Kills Pending Real Estate Sales.
Overheard at a real estate open house in 2007:
Homebuyer: “I applied for a mortgage, but I got declined.”
Real Estate Agent: “Don’t worry. Mortgages are like streetcars. If you don’t get one, just wait and grab the next one. “
This is perhaps a “fictionalized” account, but the point remains the same. Not too long ago, banks were aggressively lending and buyer financing was something you generally did not need to worry about. Fast forward to 2015, and the mortgage crunch has eased a bit, but financing is nowhere near as easy to come by as it once was.
Follow these tips for buyers and sellers to avoid financing meltdown:
This seems like an obvious one, but for buyers, pre-approval isn’t just about peace of mind. It’s about bargaining power. You are competing in the market with cash buyers, who would seem to have an advantage over you. But cash buyers often demand a lower price…so your offer may be more likely to be accepted if the buyer is confident about your financing.
For sellers, don’t give too much weight to cash offers. A buyer who needs financing may be willing to pay a higher price. And providing the financing comes through, you could be better off in the end.
Check in Early and Often
For buyers, do your homework. Get informed and be realistic about what type of loan you can qualify for. A good real estate agent can make the difference here. Be up front and honest about your financial status from the beginning, and you will much more likely to have a successful outcome.
For sellers, keep an open dialogue with the agents in the deal. Forewarned is forearmed. Often there are early warning signs that a loan may be declined, so keep a watchful eye and check in with the agents to make sure that the loan is proceeding as expected.
Consider Seller financing
A rare but often very effective way to avoid financing issues is for the seller to finance the purchase. The seller effectively loans the money to the buyer and secures it against the property, thus eliminating the need for a 3rd party loan underwriter. This is certainly not for everyone, but can be beneficial to both parties in the right circumstances.