Buyer Fell Through?
Short-term financing with a bridge loan may still allow you to buy your new home.
“Buyer Fell Through” Bridge Loan
What Can You Do When your Buyer’s Financing Falls Though?
Everything was falling into place. Your home sale was pending, you had found your dream home and signed a contingency contract. Then, at the last minute, your buyer’s financing fell through. Often, this sort of scenario can set off a domino effect, and you lose the ability to get financing for your new home. Traditionally, unless you could qualify for a new conventional loan while paying on your old loan until your old house sells, you were at the mercy of the buyer’s lender.
If this has happened to you, you are in good company. This is one of the most common reasons pending sales fail. Even if your buyer had a pre-approval letter, a change in their employment, a recent credit issue, newly incurred debts, or even a change in lender guidelines can lead a lender to cancel financing.
It’s easy to feel helpless, maybe even hopeless, when this happens to you.
However, you are not completely powerless. You do have some options.
What Are My Options When My Buyer’s Financing Falls Though?
1. Help Your Buyer Find Financing
Immediately place your home back on the market and remove all pending-sale sign riders. Meanwhile, contact us and ask a Hurst Lending representative if we can help your buyer. As a mid-size lender, we have a number of creative loan options not available through the big banks. In some cases, we can help your buyer find a more appropriate loan option and save the deal. If the deal is unsalvageable, you should sign a cancellation of the contract and, if the financing fell apart after the Buyer’s time frame contingency, you can use their forfeited deposit money to improve your home and attract more attention in the market.
2. Get a “Buyer Fell Through” Bridge Loan
Without a buyer for your current home, you can still close on your dream home using our ‘Buyer Fell Through’ Bridge Loan program. The bridge loan in this program allows you to close on the purchase of your new home while finding a new buyer for your old home. With the ‘Buyer Fell Through’ Bridge Loan program, we consider the equity from your old home and allow expanded loan ratios to qualify you for a short-term bridge loan to purchase your new property. When your old home sells we then refinance you into a low-rate conventional loan and pay off the bridge loan.
For more information on current market rates for bridge loans or information on how we can help if your buyer’s financing falls through, please click the button below. We will have a Bridge Loan expert contact you right away.
Frequently Asked Questions About Bridge Loans
Why Is The Interest Rate Higher on A Bridge Loan?
Bridge loans are short term loans, lasting up to 12 months. The loans are issued on the assumption that Buyers will be able to quickly sell their existing properties and need less than the term of their loan to bridge their transition and pay off the loan. Since this is not guaranteed, bridge loans are riskier from a lender’s perspective and consequently come with higher rates than a conventional loan.
Why Doesn’t Everyone Get One?
While more flexible and convenient than their traditional counterparts, bridge loans aren’t for everyone or for all situations.
Bridge loans do require fees, slightly higher interest rates, and a term limit. Also, to qualify for a bridge loan, buyers must show that they have the financial health to make payments on both their old home and their new home.
Who Can Qualify?
In most cases, lenders only offer loans for 80% of the combined value of the two properties, meaning borrowers must have significant home equity in the original property or cash on hand to invest as equity in the transaction. Buyers will be qualified by the lender to own two homes and must be able to pay what is essentially two mortgages rolled together. Due to the additional financial strength required to float two mortgages, most lenders require a solid debt-to-income ratio and a moderate to high credit score.
Can I Use a HELOC Instead of a Bridge Loan?
A Home Equity Line of Credit (HELOC) is sometimes considered an alternative to a Bridge Loan. HELOC loans use equity built up in property as collateral for a loan to withdraw a large lump sum of cash. Once withdrawn, the money can be used for any reason, including the purchase of a second property.
HELOCS can be a great option if a borrower has not yet put their old house on the market. A buyer can create a second loan for a percentage of the equity built up in their existing home to use in the purchase of a new home. The loan can be repaid upon the sale of the existing home, much like a Bridge Loan. Unfortunately, few, if any, lenders will offer a HELOC to a borrower who has their house listed for sale. HELOCs are generally intended as a longer-term loan and lenders do not want to spend the time and effort to put into place a HELOC loan only to have the borrower pay off the loan as soon as their house sells.
If you are wondering whether a bridge loan or a HELOC is the best option for your situation, one of our mortgage experts would be happy to help you decide how to move forward toward purchasing the home of your dreams.