If your loan fell through the day before closing, then you’re in a really tough situation where you may very well lose your contract deposit if you absolutely need financing to be able to close.
If however you’re able to close all cash or quickly find a back-up lender, and you happen to be buying in a market like NYC where either party typically has 30 days leeway on the closing date, then you may indeed be able to procure a backup solution in time.
Yes. Even though you have a comforting mortgage “commitment letter” from your lender, notice the fine print stating all of the conditions of closing and outs for the bank.
Here are a few excerpts from a recent commitment letter issued by a major, national bank that’s very active in the home lending space:
We will honor this commitment to the best of our ability. If there are any material changes in your financial status, the information you provided in your application, or the condition of the property, that would cause your loan to no longer meet applicable regulatory requirements, the terms of this loan commitment may be reconsidered or withdrawn.
Note that even if you provide and do everything they ask, they will still only “honor this commitment to the best of our ability.” Not so reassuring when you’re about to close on a home.
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.
While this may appear to be common sense, it can be easy to forget when you’re looking to get a new credit card or something else as innocuous.
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