Who Pays When a Mortgage Loan Doesn't Close?

When your mortgage loan doesn't close, it costs everybody involved. You lose money both right away and long term, depending on how long it takes you to get everything back together. But you're not the only victim. The bank and title company are likely to incur losses due to the expense of trying to get the loan closed.

The Borrower

You potentially have the most to lose if your loan doesn’t close. Application and rate lock fees are often non-refundable. But more important, you can lose the home you’re looking to buy. This is bad enough, but if you put a deposit down, there’s a chance that could be non-refundable as well. Additionally, by the time you find a new property and go through the application process again, the rate may be higher than the first time around.

The Lender

Lenders put a lot of work into processing, underwriting and closing loans. While you will pay certain fees up front, the lender orders searches and incurs costs during the processing of your application. If the loan doesn’t close, the lender does not recoup that money. The further you are in the process when the loan is cancelled, the more cost the lender has incurred, especially in employee time. As the old adage goes, time is money -- and it takes time to process a loan.

The Title Company

Like the lender, a title company puts a lot of work into the mortgage loan. Mortgage closing costs can run several thousand dollars, much of which is from the work of the title company. If the loan doesn’t close, the time and expense the title company put into it will be lost.

The Seller

A cancelled purchase mortgage has negative effects on the seller as well. The seller is counting on you to follow through with the agreed-upon purchase. If the loan doesn’t close and you can’t complete the sale, the seller is back to square one. Not only will he miss out on all the potential buyers that could have come along while your mortgage was processing, but it can ultimately lead to a reduction in price. The longer a house is on the market, the more the price will drop. The seller can lose a significant amount of money off the sales price if the house goes back on the market for an extended period of time.

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