Loan Fell Through Day Before Closing

Here’s another excerpt that’s worth reading, which goes over what happens in the case of modifications or withdrawals:

We may withdraw this approval or modify the terms of this Commitment Letter if:

• Any information is presented that has not been revealed to us previously

• You don’t close your loan on or before the Commitment Letter expiration date found on the first page of this letter

• The specific loan program for which you’ve been approved is discontinued

We are not obligated to extend the expiration date of this commitment. Should you require a commitment date extension, you may be charged a fee and will be responsible for any costs if the extension requires loan documents to be updated.

If you have a Rate Lock agreement, we may modify the terms of this commitment if you do not close your loan by the Rate Lock-in expiration date that appears in your Interest Rate Lock Agreement letter.

Please contact us immediately if:

• You have any change in income

• You decide on a different property

• You cannot deliver required documentation

• Your closing date needs to be changed.

Any of these circumstances may require you to provide additional documentation and may cause the terms of this commitment to change or to be reconsidered. We will contact you to explain the updated requirements, and your loan maybe resubmitted for credit approval.

This mortgage loan commitment is also based on the assumption that you will provide everything requested in the Commitment Letter, other documentation requested, and the information is complete and legible. If not, we cannot guarantee final approval of your loan.

Pro Tip: Be transparent and honest with your lender from the start. Don’t hide any information. Get the remaining documents they need per the commitment letter as soon as possible, as commitment letters will often state that “if we don’t hear from you, we may cancel your loan.”

The best piece of advice during the mortgage loan process is to don’t do or change a thing. If your bank has issued you a commitment letter, then they’ve underwritten you and approved your credit at that point in time.

This assumes that nothing significant changes or happens in regards to your credit profile, income, assets prior to closing.

This is why commitment letters will often have something similar to the following excerpt:

Our loan commitment to you is based on the product and terms we discussed, as well as information you provided, including your current income, credit rating, debts and property condition. Please do not apply for additional credit until your loan is closed, as this may affect the approval of your loan.

Don’t lose your job or switch jobs

Just because you’ve sent in your paystubs and employment verification letter doesn’t mean you’re off the hook. The bank will call your employer typically the day before closing to verify that you are still employed there.

If they find out that you’ve been laid off or fired, then most likely you’ll be one of those searching for what to do when your loan fell through day before closing.

In fact, most commitment letters will have something like the following excerpt:

While we’re reviewing your financial documentation, we’ll also be working behind the scenes to ensure we have things like:

• Verification of your employment

• A property appraisal report that supports your loan amount

• A property title report

Don’t apply for new credit or run your credit

This may seem obvious, but it can be easy to forget when that store clerk asks whether you want to save 20% by signing up for their store branded credit card.

Or, when your bank or other financial institution casually offers you a free credit monitoring tool on their website, where the fine print says you’ll allow them to pull your credit report.

Also, don’t run up your credit card balance with large, one-off purchases when you’re waiting to close. Doing so will increase your credit utilization which may negatively affect your credit score. Just wait a bit before you book that sick Galapagos cruise.

All of this is terrible because every time you do a hard credit pull, your score will go down. The more pulls, the worse the hit. Don’t affect your credit score and profile before you close!

Pro Tip: It may be harder to hold still for months or even years if you are buying a pre-construction or a new construction home. Just remember, there are special risks to buying a new construction home to be aware of!

If your loan fell through the day before closing, then you’re in deep trouble if you need financing in order to close. Even if the seller is generous enough to give you an extension on the closing date, you’re highly unlikely to get a second lender lined up in time.

Even if you’ve parallel-tracked with a back-up lender, you usually won’t be able to get a clear to close from this back-up lender in such short notice.

Furthermore, why did the first lender back out last minute? If it had something to do with your credit profile, or the collateral, then there’s a high amount of doubt that a back-up lender will be able to come through when the first one couldn’t.

A funding contingency is a contract contingency that protects the buyer in the event that their lender is unable to fund the purchase on closing day.

This contingency can come in real handy in the event of an unexpected job loss after contract signing, but before a closing occurs, and makes sure the buyer can walk away from the contract with his or her deposit.

In fact, custom contract contingencies like a funding contingency are only seen in markets like New York where contracts and contract riders are highly customizable.

In other states like Florida where standard Realtor purchase contracts are used, there are no places to “fill-in-the-blank” for custom contingencies like this.

Pro Tip: Remember that a financing contingency is not a funding contingency. A financing contingency, often called a mortgage contingency, is quite common in all markets. A funding contingency, which effectively protects the buyer if a bank withdraws its commitment letter prior to closing is extremely rare to see.