When accepting an offer on your house, it is always a good idea to ensure the buyer has a pre-approval letter. However, circumstances may still arise that can disqualify your buyer from obtaining a mortgage.
Here, we will go over your best course of action if this issue arises for you.
Pre-approval vs. Pre-qualification
First, let’s take a look at how the buyer may have found themselves in this situation.
When working with a professional Realtor, they should be able to help you navigate the best offer based upon the type of approval letter the buyer presents.
Pre-qualified: This means the buyer has reached out to their mortgage lender to see how much they may be qualified to borrow. This is just a brief snapshot of their financial picture for them to get an idea of where they stand.
The pre-qualification process does not take an in-depth look into their credit history, employment, debt, and other deciding factors.
Due to the quick nature of the pre-qualification process, it does not hold its weight in locking the buyer into a home loan.
Pre-approval: This is a letter stating that the buyer has met the requirements to be granted a home loan. An official mortgage application has been completed and the buyer’s creditworthiness has been assessed.
However, if things have changed in employment or with the buyer’s credit since obtaining the pre-approval, this could jeopardize the loan being financed.
As a seller, you are at a higher risk of your home sale not going through if you accept an offer without a pre-approval letter.
Here are some issues that may come up after a buyer gets pre-qualified:
- The lender finds out there was a gap in their employment. Depending on the situation, this can disqualify their income.
- The lender runs an in-depth credit check and finds something that would not appear on an average credit report.
- The buyer decides to take out a car, medical, or personal loan. This will raise their debt-to-income ratio.
- The buyer does not have enough for a down payment.
- The buyer could become recently unemployed.
The good news is if you have back-up offers in the queue you can notify the next buyer in line.
If you do not have back-up offers, your listing agreement with your agent still stands in place and your house can go back on the market.
It may not be ideal to start the process all over again, but you could end up receiving an even better offer!
You could also agree to work with the buyer depending on why their loan was denied.
They may have a new job that their lender requires them to be at for a certain amount of time to qualify that income as stable. If they are close to that time frame – it could be worth it to wait it out depending on where the market stands.
If they are denied due to coming up short for a down payment, there are down payment assistance programs that could potentially salvage the deal.
Whichever route you take, talk it over with your listing agent to help you make the best decision.