How a Minor Credit Issue can lead to a major problem

Bill and Shirley sold a home they had owned for 2 ½ years, netting $100,000. Unable to find a home to buy, they decided to temporarily rent.

Within months, their REALTOR® found a home that Shirley fell in love with. Bill insisted on making a cash offer. They had been approved 2½ years ago on a home purchase for the same price and saw no reason for not being approved again. Besides, they now had a larger downpayment.

A stalemate on price caused Bill to discontinue negotiations. A week later Shirley could not stop thinking about the home. They were then informed that if they resubmitted their final Offer, the Seller would agree to it. This time Bill called his Bank and was told to go ahead and submit the Offer. This emboldened Bill and the cash Offer was again put forward and accepted.  

Within a day of making formal application for the mortgage, the Bank informed Bill and Shirley that they could not be approved; their credit had been flagged due to a gas bill in arrears from three years prior. Bill argued that the flag existed when the Bank approved their mortgage on their previous home purchase.

 According to the loan officer, given the change in market conditions, the Bank had tightened lending policies. Bill and Shirley were stunned, especially after talking to the Bank and being told to go ahead before submitting their Offer a second time.

 The Sellers were informed and reluctantly agreed to amend the purchase contract to include a mortgage condition. Bill and Shirley shopped other Lenders and received approval for 1% higher than the prime mortgage rate quoted. This was totally unacceptable to Bill. By now the mortgage condition expired and the Seller chose not to sign an extension to the purchase contract.

Bill’s father agreed to fund the mortgage and had his financial planner write a letter to that effect. The Seller, however, wanted a letter personally signed by the father. Bill’s father had his lawyer draw up needed paperwork, and the transaction closed without a hitch.

 Conclusions: Lending policies change. Make sure the lender has qualified your credit and mortgage amount before making an offer.

 Play it safe and include a mortgage condition in your offer. The Seller will still receive cash.

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