There’s no denying that it’s been rough out there for homebuyers over the last couple of years. Demand has been high and the supply of homes for sale has not been able to keep up with that demand. It hasn’t been unusual for buyers to submit offers on multiple houses before finally having one accepted. Which can make it all the more crushing when that deal ultimately falls through. Why does this happen? Let’s take a closer look.
Rising interest rates
The federal government has recently raised interest rates in an effort to curb inflation. As a result, interest rates for mortgages have almost doubled over the last year. Many buyers began their home searches before this drastic increase. The homes they once thought they could afford are now out of reach because of the rise in rates. Higher interest rates mean you won’t be able to borrow as much as before. If you got pre-approved for a loan several months ago and are making offers based on that information, then you may not ultimately qualify for that mortgage in today’s market. To avoid this problem, be sure to lock in your interest rate. Check-in with your lender once a month to make sure your estimates are still accurate. If needed, shop around for a different loan. You may also be able to lower your interest rate by paying for points upfront.
Low appraisal
Another reason that your deal may fall through as a buyer is because of a low appraisal. In the frenzy to get an offer accepted, some buyers have offered well above the listing price. But when it comes time to have the home appraised by the lender, the appraisal comes in for less than the price offered on the home. If you don’t have the extra cash to cover the difference, then your deal can fall through. Avoid offering more than you can afford, or ask the seller to renegotiate the price if the appraisal comes in low.
Increased debt
Inflation has put a serious dent in everyone’s wallets. With prices for everyday goods rising as fast as they are, many have turned to credit to keep up with daily expenses. But if you’re in the process of buying a home, be careful. Your lender will be evaluating your debt-to-income ratio (DTI) during the closing process. This is how much money you owe each month compared to how much you earn. The lower your DTI, the better. Most lenders will be looking for a DTI of 45 percent or less. If your DTI is higher than that or has increased significantly since you got preapproved for your loan, that could spell trouble. Avoid taking on any new debt while you’re house-hunting or it could jeopardize your deal.
You’ve found a better deal
Not all deals fall through because of a problem the buyer is having. Sometimes, you may end up finding a more affordable home. Home prices are falling, and you may decide to back out of a deal if you find a better option. Take into account contingencies on your contract as well as any earnest money you may potentially lose to decide if this is the right course for you. You might also try re-negotiating the selling price because of the new market conditions.
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