One of the most disappointing things that can happen during the sale of your home is to finally receive an offer that you’re willing to accept, but then it falls through because the buyer can’t secure his or her loan. Whether your buyer has gone through initial credit screening or not, problems can still arise during escrow. Unfortunately, even getting preapproved for a mortgage doesn’t mean that your buyer will be guaranteed to receive a loan from a lender. As a seller, you need to be mindful of the fact that not every buyer who makes an offer on your home will be able to get financing.
Reasons Lenders May Reject Your Buyer:
- Job instability– If they’re someone who hops from one job to the next, their lender could see them as not having a stable source of income. From a lender’s viewpoint, they may not be stable enough in general to buy and keep a home. The recommendation is to have a job for at least two years before signing for a loan.
- Co-signing– If they cosign for a spouse or child on other loans, this could also threaten home-ownership. Even if they aren’t the primary account holder, cosigning still increases their debt-to-income ratio.
- Savings– Not only will buyers be asked to provide check stubs and tax returns, but nowadays lenders may even want to see bank statements. If they don’t have a sizable savings account, they may be rejected.
- Credit activity– If your buyer has non-existent credit, this can be just as damaging as bad credit.
- Poor credit– While lender guidelines have relaxed a bit and buyers can get a mortgage with a score as low as 620, and 500 for FHA, people who are late on payments within the last 12 months will be penalized.
Other situations that may change a buyer’s approval rating with lenders include events in life such as the loss of a job, health issues or hardship, or even separation from a spouse.
How to Protect Yourself as a Seller from Buyer Financing Woes
One thing that you can do as a seller is be mindful of the kind of offer that’s being provided. For example, if your buyer is interested in purchasing your home using an FHA loan, that may potentially mean larger risks than those who can pay cash or qualify for a traditional loan. FHA loans require a much lower minimum credit score (as low as 500) and a lower down-payment ranging from 3.5-10%. As a seller this can sometimes be worrying, especially in the event that something comes up during inspection that will require repair in the future. if your buyer is only capable of putting 3.5% down, they may be immediately turned off at the thought of having to invest money in the immediate future into repairs.
Surefire Way to Avoid a Buyer Financing Nightmare
One way to avoid a buyer financing fiasco and the disappointment altogether is to accept an offer from a buyer who can pay cash. In accepting a cash offer, you’re completely removing the possibility of your buyer not being able to qualify for a loan. There is no loan!! There are many different forms of cash buyers out there. There may be the individual who is well off and has the cash on reserve for a real estate purchase, or the homeowner who just sold a home and now is using the sale proceeds to buy yours, or you may be working with an investor who buyers multiple homes with cash.
A direct home buying company like ours falls in the last category. We don’t depend on buyer financing to qualify for loans because we have the cash on hand to purchase properties. The offer that we provide you is not only 100% net to you (because we cover all commissions and closing costs), but you can also count on the fact that our offer stands. Buyer financing issues puts sellers everywhere in a bind- especially if you’re waiting on the sale of your home to lock up your next house. By selling direct to a buyer who can pay cash, you essentially hop over all buyer loan issues.Views: 6