Handling Buyer Loan Denial

A buyer’s financing falling through after the home seller has already accepted their offer is relatively uncommon, but it does happen.

In a best-case scenario, a seller will have received multiple competitive offers and will be able to choose the next best. However, there can be situations where other offers are significantly lower than the initial offer amount or come with contingencies the seller doesn’t want.

Home sellers dealing with this type of situation often have limited time to make a decision. That’s why it’s important to think through options quickly but rationally.

How Homebuyer Financing Falls Through

Even if a buyer is pre-approved, their loan isn’t officially secured until the final underwriting is complete—often right before closing. Several things can cause a lender to revoke approval, including:

• Job loss or change in income – Mortgage lenders conduct last-minute employment verification before final loan approval. If the buyer loses their job, switches to a lower-paying role, or changes from a salaried to a commission-based job, they may no longer qualify for the loan.
• High debt-to-income (DTI) ratio – If a buyer takes on new debt (like financing a car or maxing out a credit card), their DTI may exceed lender limits, causing the loan to be denied after pre-approval.
• Low home appraisal – If the home appraises for less than the agreed price, the lender won’t cover the shortfall. If the buyer can’t pay the difference in cash or renegotiate with the home seller, the deal collapses.
• Issues with down payment or closing funds – Lenders verify where funds are coming from. If a buyer suddenly deposits large sums of money or relies on undocumented gift funds, the lender may refuse the loan.Final credit check problems – Many lenders run a soft credit pull before closing. If the buyer’s score has dropped due to late payments or new accounts, they may no longer meet loan requirements.

These issues often come as a surprise to sellers, especially if they assume pre-approval guarantees the buyer’s financing.

Pre-Approval Is Just a Snapshot—Not a Guarantee

Many people who have gone through the mortgage process assume once they have been pre-approved, the hard part is over. This is an easy assumption to make because, from a borrower’s perspective, the labor-intensive and invasive part of the whole procedure is the initial pre-approval process.

In reality, pre-approval is just an initial check, and lenders continue evaluating the buyer’s financial stability right up until closing.

• Lenders re-verify employment, bank accounts, and credit to ensure nothing has changed.
• Even minor financial shifts can potentially trigger a denial, like a buyer financing a new car or making a large, unexplained deposit.
• The loan isn't truly secure until the lender releases the funds at closing, which can be weeks after pre-approval.

Sellers need to understand that even a well-qualified buyer can have financing fall through, sometimes at the last minute.

What Sellers Can Do Next if Their Buyer’s Financing Falls Through

Accept a Backup Offer (If One Exists)

If a home seller has received multiple offers, the best option is often to pivot to the next strongest buyer without relisting the home. This is often the preferable option, as relisting can potentially tarnish perceptions of your property among local home shoppers. You might know that the buyer didn’t pull out because of some issue with the home, but people browsing listings won’t have that context.

Unfortunately, backup offers are, by their nature, less favorable. Buyers who were outbid may have offered less, asked for more contingencies, or had weaker financing.

Relist the Home on the Market

If no backup offers are available, sellers may have no choice but to put the home back on the market. While this gives the seller a chance to attract new buyers, it also comes with risks.

A home that reappears on the MLS after falling out of escrow can raise red flags for buyers, who may assume there was a problem with the property itself. Even if the issue was entirely on the buyer’s end, this perception can make it harder to generate fresh interest.

Sellers who need to relist may consider adjusting their pricing strategy or enhancing their listing presentation to counteract any negative assumptions.

Negotiate with the Same Buyer (If Possible)

If the financing issue is due to a temporary setback—such as an underwriting delay, a missing document, or an issue that the buyer can quickly resolve—it may be worth negotiating an extension. This works best when the buyer has a clear path to securing financing within a reasonable timeframe.

Although this may be preferable to relisting or accepting a less-attractive offer, sellers should be cautious about long delays. Waiting too long can create additional uncertainty and prevent the seller from moving forward with other interested buyers.

Avoiding the Risk of Financing Challenges

To prevent financing failures, sellers may want to prioritize buyers who present fewer risks from the start. Buyers with larger earnest money deposits demonstrate stronger financial stability, making them less likely to face financing challenges.

Conventional loan buyers often face fewer hurdles than those using FHA or VA loans, which have stricter appraisal and underwriting requirements. Sellers can also look for buyers who have already passed key underwriting milestones rather than those who are only pre-approved, as this reduces the likelihood of last-minute loan denials.

What Is the Best Path Forward for Home Sellers in These Situations?

Each situation is different, but the least risky approach is often to have backup offers lined up before an issue arises. Relisting the home can work, but it comes with the downside of making the property appear to be lingering, which can deter future buyers.

Sellers should also work with their real estate agent to evaluate buyers closely upfront. Doing so can lower the risk of accepting an offer from someone who might face loan denial.

Having Multiple Offers Prevents Many Sellers from Needing to Relist in Loan Denial Scenarios

One of our goals at 72SOLD, in addition to selling homes fast, is to garner multiple offers from motivated home shoppers. Having multiple competitive offers can mitigate the risk of loan denials and prevent sellers from needing to relist.

Fill out the form on our website to get our price recommendation for your home and to learn about the 72SOLD process.