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Home Buyers Guides

Mortgage Fell Through on Closing Day: What To Do?

The process of Buying a home is full of ups and downs, but few things are as frustrating as having your mortgage fall through on the closing day. If you’re in this situation, don’t despair – there are a few things you can do to salvage the deal.

From the reasons your mortgage might have fallen through to what you can do to resurrect it, here’s everything you need to know about closing day mortgage snafus.

What happens during the closing day?

To get to the closing day, both the buyer and seller have signed a contract stating that they agree to the sale. The mortgage lender will also have approved the loan. All that’s left to do is sign the paperwork and hand over the keys.

The closing day is when the mortgage lender provides the funds to buy the property. The buyer, seller, real estate agents, and loan officers will meet at a designated location to sign the necessary paperwork and finalize the transaction.

Why did my mortgage fall through on closing day?

There are a few reasons why your mortgage might have fallen through on the closing day. Let’s go over each one:

1. The mortgage lender pulled the plug.

Sometimes, mortgage lenders will get cold feet at the last minute and decide not to fund the loan. When this happens, it’s usually because of a change in the borrower’s financial situation. For example, the borrower might have lost their job or taken on more debt since applying for the mortgage.

2. The appraisal came in low.

Another reason a mortgage can fall through on closing day is if the home doesn’t appraise for the sale price. This can happen if the market has softened since the contract was signed or if unforeseen repairs need to be made.

When this happens, the buyer and seller must renegotiate the sale price. If they can’t agree, then the deal will fall through.

3. The home inspection turned up serious problems.

When a home inspector finds serious problems with the property, it can cause the mortgage to fall through. This is because the borrower might not be able to get insurance on the property, or they might not be able to get the loan if the repairs are too expensive.

4. The mortgage documents were inaccurate.

Mortgage documents are complex, and it’s not uncommon for there to be errors. If there are errors in the mortgage documents, it can cause the deal to fall through. This is because the mortgage lender might not be able to fund the loan if the documents are inaccurate.

5. The borrower changed their mind.

Finally, the borrower might have simply changed their mind about buying the property. This can happen for various reasons, such as cold feet or a change in financial situation.

What Happens if Your Mortgage Falls Through on Closing Day?

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So, what happens if your mortgage falls through on closing day? Here are a few things you can do:

1. Renegotiate with the mortgage lender.

If the mortgage lender pulled the plug, you might be able to renegotiate the loan. This is especially true if the reason for the mortgage falling through was a change in your financial situation.

If you can show the mortgage lender that you’re still a good candidate for the loan, they might be willing to fund it.

2. Shop around for a new mortgage lender.

If the mortgage lender isn’t willing to budge, you’ll need to shop for a new one. This can be time-consuming, but it’s worth it if you can get a mortgage with better terms.

3. Renegotiate the sale price with the seller.

If the appraisal came in low or the home inspection turned up serious problems, you’ll need to renegotiate the sale price with the seller. This can be a difficult process, but it’s worth it if you can get the price you want.

4. Get creative with financing.

If you’re having trouble getting a mortgage, you might need to get creative with your financing. Some options you might want to look into include:

Remember that these options might have higher interest rates than a traditional mortgage, so compare the costs before deciding on one.

5. Walk away from the deal.

You might need to walk away from the deal if you cannot get the mortgage you want or renegotiate the sale price. This can be a difficult decision, but it’s sometimes necessary. The bottom line is that you must do what’s best for you.

6. Wait for the market to turn around.

If the cause of the mortgage falling through was a low appraisal, you might want to wait for the market to turn around. This could take months or even years, but eventually, the property’s value will go up, and you’ll be able to get the mortgage you want.

That said, you should only wait for the market to turn around if you’re certain you want to buy the property. Otherwise, you might end up missing out on other opportunities. Check out things to consider when buying a new home for more information.  

7. Rent the property from the seller.

Did you know you can rent the property from the seller if your mortgage falls through on closing day? This is called a lease option, and it’s a great way to get into a property without having to get a mortgage.

With a lease option, you’ll pay the seller a monthly rental fee for a set period. Usually, the rental period is one to three years. At the end of this rental period, you’ll have the option to buy the property.

Lease options are a great way to get into a property if you cannot get a mortgage. However, they’re not without their risks. Make sure you do your research before signing a lease option agreement.

8. Ask for an extension.

If you’re close to getting a mortgage but need more time, you might be able to get an extension from the seller. This is usually only possible if the seller is willing to work with you. You might need to walk away from the deal if they’re not.

9. Bridge the gap with a personal loan.

One thing you can do if your mortgage falls through on closing day is to take out a personal loan to cover the gap. This is called a bridge loan, a way to get the money you need to close on the property.

Bridge loans typically have high-interest rates, so they’re not ideal. However, they can be a good option if you cannot get a mortgage.

10. Use your savings.

If you have the money, you can always use your savings to cover the cost of the property. This is usually only an option for people with a lot of money.

If you decide to use your savings, make sure you have enough left to cover your living expenses. You don’t want to deplete your savings and then be unable to pay your bills.

FAQs

Q: Is it common for mortgages to fall through on closing day?

A: While it’s not common, it does happen. There are various reasons why a mortgage can fall through on the closing day, such as the appraisal coming in low or the home inspection turning up serious problems.

Q: What happens to my deposit if the mortgage falls through?

A: If the mortgage falls through, you might be able to get your deposit back. This will depend on the contract you signed with the seller.

Q: Can I sue the mortgage lender if they pull out on the closing day?

A: While you can sue the mortgage lender, it’s not likely to be successful. This is because mortgage lenders are allowed to cancel the loan for various reasons, such as the appraisal coming in low or the borrower changing their mind. If you’re considering suing the mortgage lender, you should speak to a lawyer first.

Conclusion

Don’t be discouraged if your mortgage falls through on the closing day. There are a few things you can do to salvage the deal. From waiting for the market to turn around to using your savings, there’s an option for everyone. Just make sure you do your research and consult with a professional before making any decisions.

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