The Buyer Qualified-But The House Didn't

Opening Monologue Imagine spending months preparing to buy a home. You improve your credit. You save the down payment. You provide tax returns, bank statements and pay stubs. The lender reviews everything and gives you a preapproval. Then you find the house. It has the right location, the right floor plan and enough room for your family. You write the offer, the seller accepts it and you begin imagining your life in the home. Then the telephone rings. There is a problem with the financing. Your income hasn’t changed. Your credit score hasn’t fallen. You haven’t purchased a new truck or opened another credit card. The problem isn’t you. The problem is the house. This is something many homebuyers do not understand. A mortgage lender does not simply approve a borrower. The lender must approve the borrower, the loan program and the property securing the loan. A preapproval primarily tells you that your income, assets, debts and credit appear to satisfy certain requirements based upon the information reviewed at that time. It does not guarantee that every property you select will qualify for financing. The appraisal might come in below the purchase price. The appraiser may identify repairs required by the loan program. The property may have an unpermitted addition that cannot be included in the value. An accessory dwelling unit may not be a legally permitted rental. A solar lease may add another monthly obligation to the buyer’s qualification. The homeowners association may have inadequate insurance, pending litigation, excessive delinquencies or a large special assessment. The roof may be too old for an insurance company to accept. The property may sit in a wildfire or flood-risk area where adequate insurance is unavailable or prohibitively expensive. The buyer can be perfectly qualified—and the property can still fail. That possibility is especially important today. Mortgage rates are approximately 7.4%, meaning many buyers are already near the limit of what they can comfortably afford. An unexpected $300 HOA payment or a homeowners-insurance premium substantially higher than estimated can change the monthly payment enough to destroy the buyer’s qualification. Today, I am joined by Realtor Aaron Clark and mortgage professional Dwight Millard. Aaron is going to explain how buyers and agents can investigate properties before becoming emotionally and financially committed. Dwight will explain what the lender must know about the house, how the loan program affects property eligibility and which problems can be repaired, documented or negotiated—and which problems may kill the transaction. We will cover appraisals, insurance, solar agreements, condominiums, homeowners associations, unpermitted additions, wells, septic systems and property condition. Most importantly, we will give buyers a checklist they can use before submitting an offer. Because getting preapproved is only the first approval. The second approval belongs to the house.