A mortgage loan closing has a lot of moving parts and those parts don't always come together seamlessly. If a mortgage loan doesn't close, a number of different scenarios can occur. These range from a simple rescheduling to losing the deal altogether. It all depends on the reasons for the delay and how realistic it is to manage any problems that have cropped up.
Why Closings Don’t Happen
Many mortgage closings are conditional. This means that a lender approves a mortgage assuming the borrower will meet certain conditions outlined in the commitment letter. These conditions can range from providing insurance to getting an inspection to obtaining an appraisal. If these conditions aren’t met by the stated closing date, it can delay or even cancel the mortgage. Other circumstances that can delay a closing range from simple scheduling conflicts to issues with sellers, attorneys and title companies.
Often when a loan doesn’t close, the parties go to work addressing the issues that led to the delay. This usually involves compiling and addressing the items required by the commitment letter. Sometimes this can extend to reworking the loan based on new information. For example, if an appraisal comes in too low, the lender can move forward at a reduced loan amount, provided that the borrower can come up with the additional cash. Often the mortgage can still move forward, but sometimes with modified terms and conditions.
Sometimes an issue comes up and cancels a loan closing entirely. In this case, the loan is effectively dead. These are usually significant issues like a major deficiency in the property uncovered during an inspection or a previously unknown prepayment penalty in a refinance. If a loan closing is cancelled and the lender’s approval expires, the borrower would have to go through the entire application process again if he still wanted a loan.
A delay or cancellation of closing can have consequences for all involved. First and foremost, the borrower, seller, lender and title company have all put time and money into the loan. If the loan doesn’t close, that time and money is lost to them all. A seller may not be able to move his property right away; the buyer may have to start again from square one. The lender loses the buyer's business and risks bad word of mouth whether the issues were its fault or not. Everyone involved is affected negatively when a mortgage doesn’t close, so it’s in everyone’s best interests to explore all avenues before killing the deal.