Agents, stop letting your deals die. Don’t give up. There are many reasons deals can go sideways. There are many ways to fix these problems. This guide will help you get your transactions back on track. Don’t lose heart.
What should you do if your buyer’s financing is denied by the bank? There are options, no matter who it is: your buyer or the buyer listed on your listing. These tips will help you prepare for the future if it does happen.
Over the course of our careers in real estate, we have closed thousands upon thousands of transactions and have helped thousands of clients achieve their goals.
These are proven solutions to financing problems. We have successfully coached clients to use all of these options.
Manage your mindset is the key. Let go of the panic and get to work. You still have a deal if the buyer wants to buy and seller wants to sell. You must get to work solving the problem. Most problems do have a solution!
You should carefully consider all facts before accepting a backup offer from your sellers. Request a 2-week extension if there is no backup offer. This will allow you to address the issues and give you time. You can still reach the closing table.
Note: A lender must inform a borrower why they are denied a loan. Find out the details. If the lender won’t tell you, they should at least tell the buyer.
1. Issues with closing costs or down payment
These are some questions you should ask immediately. How much money will the lender need if the buyer doesn’t have enough cash? What if the loan program was changed? Is it possible to use gift money to make up the difference?
Borrowers may be able to cash out an investment account, or 401k, to help build their downpayment. They could also get a cosigner to solve the problem. Try to resolve the down payment issue with any of these solutions. Don’t give up.
Another problem with down payments is that they guarantee an appraisal gap. An agent could try to negotiate with the seller. To create funds, the seller could also offer a second mortgage. The seller could charge interest and file a lien through the title company to require that the loan be paid back within a specified time.
If you have any issues with closing costs or the down payment, you might consider raising the price to cover the deficit. As long as the property is still appraised. The seller could also be asked to contribute to the buyer’s closing expenses, thereby giving the buyer more money for their down payment. The seller would make the same amount because the purchase price was increased.
2. Ratio issues
What does this mean? Lenders require specific debt-to-income ratios in order to qualify a borrower for a mortgage loan. Lenders calculate the buyer’s total expenditures divided by their gross income to determine the debt-to–income ratio.
The ratio of housing-related expenses to gross income is a measure of how much someone spends on their rental or mortgage payments. The ratio of total debt to income should be at least 36%. The total housing cost should not exceed 28%
If the ratios are too high it means that the borrower is in too much debt. This creates too much cash flow, which goes out the door, but not enough to pay their mortgage.
A buyer could easily get into financial trouble due to their debt-to income ratio
Prices have risen
The ratio requirements have not changed
Higher interest rates mean higher payments
How can you fix high ratios? Buyers and agents should discuss the problem with the lender.
The buyer could repay a student loan, credit card, car loan, or credit card. Check to see if the loan must be paid off or if it can be paid down.
Ask the lender if a new loan product would require a different ratio. You might also consider increasing the downpayment to fix the ratio problem. If so, how much?
To fix the problem, the buyer might consider a cosigner.
3. Credit score issues
Low scores or a particularly damaging item, such as a tax lien or recent default, can lead to credit problems that can be fatal. Find out which one is yours.
It is possible to fix a buyer’s low credit score by using a few simple remedies. Ask buyers to use Experian.com for credit updates and to correct any errors. Experian Boost can be used to improve scores. You might be able to get a loan if the buyer can turn a 698 score into a 715.
If the buyer’s credit score does not allow for the loan product, the borrower may need to switch to FHA, or another type of mortgage that is more flexible.
Refer to the previous point if you need to pay off something. Find out what must be paid off and develop a strategy to help the buyer pay it off.
4. The home sale of the buyer stalled and they are unable to close on their new house
Accept a backup offer if a buyer’s contingency is not met.
Ask the seller if they will change the contract to “contingent on a home sale with an escape clause”. They can also try to sell it to someone who isn’t contingent on a home sale. This is similar to a “first right of refusal”, which protects the original buyer, but allows the seller to accept a faster closing.
These are the four strategies to use when a buyer’s financing is uncertain. There may be a solution just below the surface.
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