You found the house of your dreams, made an offer and got it accepted. The inspection is finished and closing is almost here – then the bad news comes: Your financing isn’t ready. Maybe the lender needs more documents. Maybe the appraisal fell short. Or, worse, the lender has denied your loan application altogether.
So, what happens to the purchase? A financing problem doesn’t necessarily mean the deal automatically disappears. What happens next largely depends on the terms of the purchase contract and whether you have a financing contingency.
What does the financing contingency say?
A financing contingency generally gives a homebuyer a certain amount of time to obtain mortgage approval. If the financing doesn’t happen, you may have the ability to back out of the purchase. The contract may require you to apply for new financing promptly, provide requested documents to the bank and make a good-faith effort to obtain the loan.
You may also be required to notify the seller that your financing isn’t going well within a certain period of time. If you miss that deadline, you could lose the right to withdraw your bid and cancel the deal. That can put the deposit you laid down on the house when you made your bid at risk.
What if the loan is delayed rather than denied?
Sometimes financing hasn’t fallen through – but the lender simply isn’t ready to close on schedule. Underwriting sometimes just takes longer than expected, an appraisal may be unexpectedly delayed or the lender may need additional information.
In that situation, a buyer and seller may agree to extend the closing date. The seller isn’t necessarily required to agree, however. You should know what your contract says before approaching the seller about the issue.
A delayed mortgage application doesn’t have to turn into a major problem. Homebuyers who encounter financing issues should review their contract with the seller before deciding what to do next. A Florida real estate attorney can help determine whether the financing contingency provides a way out or whether another solution, such as negotiating an extension, may be possible.