Always wondered, what happens if....

[Anonymous]

Picture this:

You get preapproved by the bank

You start looking for houses

You put in the offer for the house, contigent on inspection etc

Prior to closing date, you get hit with an unexpected event, that you now, no longer can afford the house payments etc.

In that case, what happens?

Can the buyer now, get out of the house buying deal. What are the consequences?

But at the same time, I guess, the buyer would have his credit score go down, since he took a hit on his CR, prior to a preapproval.

Thanks

[Jess21]

Im not sure what happens but i have always been scared of what happens if I find a house, commit to buy it and the deal falls through right at the end.  Im so scared of that

[Anonymous]

Yes, if the offer/contract was contigent on financing.

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@Anonymous wrote:

Picture this:

You get preapproved by the bank

You start looking for houses

You put in the offer for the house, contigent on inspection etc

Prior to closing date, you get hit with an unexpected event, that you now, no longer can afford the house payments etc.

In that case, what happens?

Can the buyer now, get out of the house buying deal. What are the consequences?

But at the same time, I guess, the buyer would have his credit score go down, since he took a hit on his CR, prior to a preapproval.

Thanks

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[Gunnar419]

A defaulting buyer usually loses all earnest money plus any other upfront costs (like for inspections), but it can vary depending on the terms of the contract.

Some hit to the credit would already have been done and there's not likely to be any further hit from defaulting on the purchase.

In some cases, a seller might sue a buyer who backed out, but it's pretty rare and not likely to happen if the buyer had to back out for some big reason like health problems, income loss, etc.

[StartingOver10]

In my experience the buyer gets their EMD back if they do not qualify for the loan, especially for VA or FHA, even conventional depending upon what the contract states.

You do not get back the inspection money or application funds (for appraisal and credit report).

However, if you go with a builder - they usually have something in their contract that you automatically lose your deposit after X days from date of execution if you fail to close.

Builders have their own builder friendly contracts that differ from our normal contracts that we use in the resale market.

Bringing a suit against a buyer for failing to qualify for financing is extremely rare. Frankly I haven't seen it but I'm sure it exists somewhere (builders contract most likely).

There would be no hit to your credit report for failing to close due to not qualifying. Contracts aren't recorded. Deeds and mortgages are recorded after closing. Now, if you failed to pay your mortgage after closing - that's a horse of a different color.

Edit for clarification:  Not qualifying  for financing is NOT a default if your contract is contingent upon financing approval. Most financing contracts are written so that you have X days to get a mortgage approval and if you don't get mortgage approval you get your earnest money refunded. There are few exceptions, notably builder contracts. If you are a buyer, insist on a financing contingency.