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When a Loan Origination Doesn’t Go Through: Part Two

| Home Buyer Guidance

Congratulations – you’ve been preapproved! You’ve found the perfect house and put in an offer that was accepted. You are officially “under contract.” You start packing, choosing paint colors and making plans for other changes or improvements. But then you find out there is an issue with the property that may prevent the loan from going through – and all of your plans come to a screeching halt. How can you ensure that your loan proceeds smoothly?

If you hear from your lender or real estate agent that there are issues with the loan, don’t assume it is the end of the world. If you are buying an existing home rather than new construction, small problems are likely to come up. Many older homes need repairs that can delay the loan process, but they most likely won’t prevent the loan from going through. As a buyer, being prepared is the best line of defense.

In order for a home loan to go through, the property must be considered livable. If there are issues with the condition or safety of the property, the loan cannot go forward until the problems are addressed. In most cases, the problems are small and can be resolved quickly. In a few rare situations, the issues may be large enough to cancel the process permanently and leave the buyer looking for another property.

Pay Attention and Get an Inspection

Unless you are a builder or home improvement specialist, you can’t be expected to know all of the situations that would prevent a home loan from closing. However, you should look closely at the property details and be aware of some common problems, including the following:

  • Foundation problems
  • Water damage
  • Mold
  • Electrical or plumbing issues
  • Unfinished bathrooms
  • Empty pool
  • Chipped or peeling paint
  • Stairs without railings
  • Bare wiring

Although not all of these are deal breakers, they would require that the problem be resolved before closing on a standard loan. If the buyer wanted to make repairs after closing, they would need to use a special loan product designed specifically for fixer-uppers or renovations.

While an inspection is not required for all loans, it is in the buyer’s best interest to have one done. A professional inspection will reveal most of these issues, at which point the buyer can either ask the seller to pay for the repairs or walk away from the property.

Value vs. Price

The price of a property is another factor that could cause a loan origination to fall through. If the market value of the house is less than the loan requested, the lender may not be able to fund the loan. In this case, the seller could reduce the listing price or the buyer could pay cash for the difference.

If you are told that the loan process cannot continue due to a problem with the house, don’t panic. In most cases, the issue can be resolved, allowing you to buy the home you want. In other situations, it is best to uncover issues before the purchase is finalized, so you can walk away and find a better property.

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