Mortgage Fell Through On Closing Day (And Other Mishaps): 6 Things That Can Go Wrong When Finalizing A Real Estate Transaction

Getting a mortgage and buying a house involve a lot of moving parts. If one piece falls through, it can cause everything to come to a screeching halt. Closing is one of the crucial steps in the home buying process that can make or break a real estate transaction.

Although closing issues can cause delays for buyers and sellers, knowing where the problems lie can help you effectively manage them. Understanding what can go wrong during the closing process can also help you feel prepared if things don’t work out as planned.

With all this in mind, let’s walk through some common issues that buyers and sellers may encounter when closing on a house.

Closing Problem #1: The Mortgage Falling Through On Closing Day

Taking out a mortgage is the most common way to finance a home purchase. The mortgage application process puts a borrower’s finances under the microscope, so it’s not uncommon to discover a mortgage fell through even after the borrower gets the initial go-ahead from a lender.

This could happen because the buyer didn’t actually get initial mortgage approval, also called mortgage preapproval. A mortgage could also fall through if you have changes in your financial situation. Let’s take a look at how these examples can affect whether your mortgage falls through on closing day.

Unverified Mortgage Preapproval

Some lenders may issue “preapproval” letters based on information not fully verified. Technically, that’s a process called prequalification. Your subsequent mortgage application could be denied or approved for significantly less money upon closer inspection.

Prequalification doesn’t take as deep of a look into your financial info as initial mortgage approval. For example, the process typically won’t subject you to a hard credit check and some other important verifications of your financial strength.

Rocket Mortgage^® uses our Verified Approval¹ process to evaluate your initial mortgage application. That means we verify the information you provide by checking your credit history and asking for bank statements. We’ll also request tax documents and other financial information before we issue our Verified Approval Letter.

Changes In Your Financial Situation

A buyer’s financing could also fall through if their financial situation experiences big changes after the buyer has received initial approval. Before a lender gives final approval on a loan, they do another check on the buyer’s finances.

If the buyer’s debt-to-income ratio (DTI) is suddenly inflated – for example, they start financing a new car – or their credit score dropped significantly, they could jeopardize their initial mortgage approval. Issues can also arise from taking a new job or opening up a new credit account. Borrowers may also want to avoid making a big purchase that cuts into the amount that was set aside as reserves.

The Solution

Unfortunately, there isn’t a ton that can be done after the fact unless the solution is fairly simple and doable. For instance, the buyer could make a larger down payment if a lender approves them for less than they expected. A buyer can also look for alternative financing, but that will further delay the home closing date.

The best solution in this case is prevention. Buyers may want to:

• Get initial mortgage approval before making an offer on a house
• Stay in regular contact with their lender
• Provide all the necessary documentation in a timely manner
• Avoid making changes to their financial situation during this time

If you’re a seller, only consider offers that come with an initial mortgage approval letter. They show that the lender has verified the borrower’s information. All-cash buyers will be asked to provide a proof of funds letter showing they have the money on hand to complete the transaction.

Closing Problem #2: The Home Appraisal Holding Up Closing

Before you can purchase a home using a mortgage loan, your lender will require a home appraisal. An appraiser will evaluate the property and determine what the house is actually worth, independent of its list price.

The lender will only give you the amount of money the appraisal says the house is worth. If it appraises low, the buyer and seller must negotiate how they want to make up the difference.

The Solution

The remedies for a low appraisal are fairly simple. When an appraisal comes in low and you’re still determined to make the sale work, you have a few options:

• The seller can lower the asking price.
• The buyer can make up the difference in cash.
• The buyer and seller can meet in the middle. Here, the seller typically lowers the price, and the buyer pays the rest of the difference out of pocket.

You also have the option to challenge the appraisal. However, you’ll have to provide good reasons to support your claims. This could mean digging up comparable sales showing that the house should be valued higher. This could also mean providing proof that the information the appraiser used to value the property was incorrect.

Closing Problem #3: An Unsatisfactory Home Inspection

Most buyers will want an inspection contingency included in the purchase contract. This gives the buyer the ability to have a home inspection completed to identify potentially costly issues with the property. Even if your purchase agreement doesn’t include contingencies, you should still ask for a home inspection. This gives you the full picture of what you can expect with repairs if you buy the home.

No house is going to be in perfect shape. However, if an inspector flags anything that could cause serious problems down the road, the closing process could be delayed.

Closing delays can happen if the buyer and seller can’t agree on how to handle problems revealed by the inspection. A buyer can walk away from a home purchase if they aren’t satisfied with the remedies offered by the seller. Or, maybe the buyer doesn’t think the inspection issues are worth the fight at the end of the day.

The Solution

If you’re determined to sell your house, you can offer to have the repairs completed before the final walkthrough. You can also leave the repairs for the buyer to complete and offer concessions to offset their costs. Be open to negotiate with the buyer, unless you can find another buyer who’s willing to purchase the house as-is.

For buyers, it may be tempting to downplay significant issues if you really want the house. Closing delays are rarely ideal. But, coming to an agreement on what repairs will be done before you purchase the house is worth it.

Closing Problem #4: Title Issues

Your lender will have a title company complete a title search before you can purchase the home. This process ensures that no other parties have some sort of claim to the home.

The title search protects the buyer (and the lender) if there are unpaid taxes or other liens attached to the property. The process also identifies any entities that may be able to claim legal ownership of the home.

The Solution

The real estate transaction can’t proceed until title issues are resolved and the title has been cleared. This process can sometimes take a while and can cause lengthy delays.

For sellers, make sure:

• You don’t have any outstanding debt that could affect your ability to sell your house
• You’ve fully paid any contractors who’ve done work on your house
• You’re up to date on your taxes
• You’ve paid off any debt tied to your house before closing
• If you’re divorced, that you confirm your former spouse doesn’t have any claim to the home

Buyers, unfortunately, don’t really have much control over preventing or fixing title issues. They can, however, purchase an owner’s title insurance policy. Buyers are usually required to pay for a lender’s policy as part of their closing costs, but purchasing an owner’s policy protects them if title issues arise after closing.

Closing Problem #5: Unfulfilled Contingencies

Prior to closing, a buyer will typically take one more look at the house after the seller has moved out. The final walkthrough allows the buyer to confirm that the house meets the conditions agreed upon in the purchase contract.

Here’s a short to-do list for a buyer and their agent to consider during the final walkthrough:

• Confirm that the home is empty, undamaged and reasonably clean.
• Check that negotiated repairs have been made.
• Ensure any household items included in the sale (like kitchen appliances) were left in the home.
• Make sure all home systems are functioning as stated in the contract.

If any contingencies are specified in the contract but haven’t been satisfied, that puts your closing in jeopardy.

The Solution

A good buyer’s agent will be in close communication with the seller’s agent. They’ll make sure that contingencies are being taken care of in a timely manner. If the seller is unable to complete repairs before closing, they might consider negotiating some concessions. For example, the seller may give the buyer the funds to complete the repairs later on. Otherwise, the closing may be delayed.

To avoid delays, be mindful of deadlines for any stipulations you have in your contract. Make sure you’re on track to have everything completed.

As the home seller, ensure you’re following the contract and leaving everything that was included in the sale. Make sure you leave the home in good condition and fix any damage that occurred during the move-out process.

Closing Problem #6: Cold Feet

Sometimes a real estate contract can take a wrong turn simply because one party no longer feels good about it. Although uncommon, a buyer or seller could suddenly decide to back out of the home purchase.

Whether you’re buying a home or selling one, the home purchase process can be an emotional one. If one of the parties involved starts to feel unsure about their decision, it can cause some serious delays. It could even end the home buying process altogether.

The Solution

If you’re a seller whose buyer backs out unexpectedly (and outside of any contingencies that would allow them to walk away), you at least have some insurance thanks to the buyer’s earnest money deposit.

The earnest money deposit is typically a small percentage of the total purchase price. It shows the seller that a buyer is serious about purchasing their house. At closing, the money will be applied to the buyer’s down payment and/or closing costs.

But if the buyer walks away for a reason not specified in the contract, the seller keeps the earnest money. If you’re worried about a potential buyer walking away before closing, you can request a larger earnest money deposit, which will increase the buyer’s incentive to go through with the deal and leave you in better shape if they don’t.

If you’re a buyer whose seller suddenly tries to cancel the transaction, you have legal remedies available. Both you and the seller’s real estate agent can sue for damages. Unfortunately, if the seller is set on canceling the sale, it may be better to move on after your earnest money is returned.

How Often Do Closings Fall Through?

A 2021 National Association of REALTORS® (NAR) Confidence Index Survey shows that 73% of home purchase contracts are settled on time. Of those that aren’t, 22% are delayed but go on to close. Only 7% of contracts are terminated, with “issues related to obtaining financing” being the most common reason for delayed or terminated home purchase contracts.

Even if you hit some bumps in the road, have faith that you’ll still get to the finish line. The time to close on the house might just be a bit longer than you expected.

What Else Can Go Wrong At Closing? FAQs

Closing on a house is an exciting time for buyers and sellers. But, of course, plans can always take a turn at the last minute. Let’s consider some additional questions you may have about issues that can surface during the closing process or on closing day specifically.

Can financing fall through at closing?

Yes, a mortgage loan can fall through during the closing process, and even on closing day, for a number of reasons. Borrowers who take on additional debt or open new lines of credit during the home buying process can be seen as a risk to lenders. If you want to make a large purchase (like buying new furniture) or apply for a new credit card, avoid doing it until you’ve closed on your new home.  

Can a loan be denied after closing day?

A mortgage can’t be denied by a lender after closing on a house. However, several issues can arise during the closing process that can put your home purchase in jeopardy. As a home buyer, be prepared to deal with mishaps surrounding the home appraisal and inspection, contingencies and the title.

What mistakes can I avoid when closing on a house?

As a buyer, try to avoid taking any of the actions listed below when closing on a house:

• Changing your job
• Taking on new credit
• Missing current bill payments
• Making major purchases
• Common mishaps on the seller’s part often include:
• Setting an unrealistic sale price
• Listing the house at the wrong time (selling in a buyer’s market versus a seller’s market)
• Choosing an unreliable or inexperienced real estate agent

The Bottom Line: Plan Ahead To Prevent Closing Issues

While you can’t prevent every scenario, closings are often delayed simply because one or more parties aren’t fully prepared. Issues can also arise if buyers and sellers aren’t sticking to the agreements outlined in the purchase agreement.

If you’re starting over after having a home purchase fall through, be sure to attach a Verified Approval Letter to your next offer. Apply online today to get started on your new house hunt.

¹Participation in the Verified Approval program is based on an underwriter’s comprehensive analysis of your credit, income, employment status, assets and debt. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Rocket Mortgage’s control, including, but not limited to satisfactory insurance, appraisal and title report/search, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close due to a Rocket Mortgage error, you will receive the $1,000. This offer does not apply to new purchase loans submitted to Rocket Mortgage through a mortgage broker. This offer is not valid for self-employed clients. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. Additional conditions or exclusions may apply.