Financing Contingency

TLDR: If a buyer cannot obtain financing, they can try to find an alternate, but inability to pay for the property prevents the transaction from going through. 

The Buyer's Loan: The Long Pole in the Tent

Obtaining a loan involves being approved personally as well as having the property approved, which makes borrowing money one of the biggest obstacles to purchasing a house.

By now, the buyer should already have been pre-approved and have provided a letter stating such in their offer. Here are the remaining steps that the buyer will need in order to obtain a mortgage:

A Word of Warning about Appraisals

Even if the buyer didn’t include an Appraisal Contingency, the buyer’s lender will almost certainly require that the property appraise for at least the purchase price. If your property doesn't appraise for at least the purchase price, you’ll still be able to proceed with the purchase, but you may need to renegotiate the terms with the buyer or the lender won’t approve the loan. 

What happens if the buyer isn't approved?

This is never an ideal situation for either party. If the buyer included this contingency, you won't receive the earnest money deposit as compensation, and both parties will have wasted time. The buyer can try to find an alternate lender, but that might take precious time you could instead spend  looking for a more qualified buyer. If the buyer isn’t approved, you’ll have the option to back out of the contract.

Tip: Talk with the Buyer

If the buyer's loan isn't approved but they're still interested in making the purchase, sometimes they may be open to finding a different lender with less strict lending criteria. One option would be to re-list the property while the buyer searches for a new lender. However, if time is of the essence for you because your purchase of another property depends on this sale, you may have no choice but to re-list. Communicating with the buyer may result in additional options.