Selling a home can feel like a major victory, especially when you’ve accepted a great offer and things seem to be moving forward. But sometimes, the road to closing is anything but smooth. One of the biggest hurdles? Financing problems.
Even with buyer and seller on the same page, a deal can unravel if the money doesn’t line up. From last-minute mortgage rejections to property-specific challenges like balloon payments, the financing side of real estate is full of potential pitfalls.
Here’s a closer look at some of the most common financing issues that can derail a home sale – and what you can do to avoid them.
1. Loan Denial After Pre-Approval
Getting pre-approved is a strong signal that a buyer is serious — but it’s not a guarantee. A lender can still deny a mortgage application even after issuing a pre-approval letter. This usually happens if the buyer’s financial situation changes between pre-approval and closing.
For example, maybe the buyer switched jobs, racked up new debt, or their credit score dropped. Lenders will run another check before final approval, and if something’s off, the deal could fall apart just weeks or even days before closing.
Tip: Sellers can request regular updates from the buyer’s lender or have their real estate agent do the follow-up. It also helps to prioritize buyers who’ve been fully underwritten, not just pre-approved.
2. Low Appraisal
Appraisals can cause major turbulence in a transaction. If the home appraises for less than the agreed sale price, the lender won’t approve the full loan amount. This means the buyer either has to make up the difference in cash or negotiate a price reduction.
When neither party budges, deals fall through. In hot markets, bidding wars sometimes push prices beyond what appraisers are willing to validate. And in slower markets, comps might not support the seller’s expectations.
Tip: To avoid surprises, sellers can consider getting a pre-listing appraisal. While it’s an upfront cost, it gives you a realistic view of what your home is likely to appraise for.
3. Issues with the Property Title
Financing won’t move forward unless the home has a clean title. If there are liens, disputes, unpaid taxes, or ownership complications, lenders will put everything on pause. Title issues are more common than many sellers realize and can range from minor clerical errors to full-on legal battles.
A buyer’s lender needs assurance that the property can legally be transferred free and clear. If anything’s unresolved, it can delay or kill the sale altogether.
Tip: Before listing, sellers should order a title search or work with a title company to ensure there are no hidden surprises.
4. Contingency Fallout
Many buyers include contingencies in their offers. These clauses allow them to back out of the deal under certain conditions, such as if their financing doesn’t come through or their current home doesn’t sell. While totally legal and common, contingencies can become deal-breakers if they’re not met on time.
For example, a buyer might need to sell their existing home before closing on yours. If their deal falls through, yours could too. Or maybe they’re relying on a specific type of loan, and the lender pulls out at the last minute.
Tip: Sellers can counter with tighter contingency timelines or prioritize cash buyers and those without home-sale dependencies.
5. The Balloon Mortgage Dilemma
One financing issue that’s especially tricky is when a property comes with a balloon mortgage. This type of loan features low monthly payments for a set period (usually 5 to 7 years), followed by a massive final payment – the “balloon.”
If a seller is trying to offload a house with balloon payment due, it can raise red flags for both buyers and lenders. Buyers might worry about how the property was financed, while lenders might hesitate to approve funding if the outstanding debt isn’t clearly resolved.
From the seller’s side, this looming payment can put pressure on the timeline. If they can’t refinance or cover the balloon amount, they may need to sell fast – sometimes at a discount – just to avoid default.
Tip: If you’re selling a home with a balloon payment approaching, it’s important to be transparent with buyers and settle the debt (or arrange for it to be paid at closing). Consulting a mortgage or real estate attorney can help you navigate this process efficiently.
6. Unverifiable Income or Employment
Some buyers look great on paper, but if their income or job can’t be verified, the lender won’t take the risk. This happens often with self-employed buyers or those with non-traditional income streams. Even if they’re financially stable, proving it to a bank is another story.
Additionally, if a buyer just started a new job or is transitioning careers, lenders may not consider their income stable enough to underwrite a long-term loan.
Tip: Sellers should work with agents who know how to vet buyer financials early on. It’s also okay to ask for proof of funds, especially with higher-risk buyers.
Final Thoughts
Financing issues can derail even the most promising home sale. Whether it’s a buyer problem like failed pre-approval or a property issue like a balloon payment due, these challenges are real – and they happen more often than you’d think.
For sellers, the best defense is being prepared. Know your home’s title status, understand the terms of your own mortgage, and work with experienced professionals who can help you spot red flags early. That way, if things start to go sideways, you can pivot – and keep the deal alive.
