10 Ways to Avoid a Last-Minute Collapse of Home Sale

NEW YORK (BankingMyWay) -- In real estate deals, there are two moments when everyone should be happy: when the contract is signed and when the closing is complete. Unfortunately, things sometimes go wrong and the second moment never arrives.

Sometimes bad luck gets in the way -- a tornado flattens the place. But derailed deals -- otherwise known in real estate parlance as "failed sales" -- can also result from bad faith, bad research or badly written contracts. Failed sales have been on the rise, too.

A failed home sale can be costly. At a minimum, one or both parties will have to start the process all over again. In more extreme cases, a broken deal results in monetary damages, like a buyer forfeiting a down payment. A seller who backs out for no good reason can be sued by the injured buyer.

Many deal failures are avoidable if buyers and sellers take enough care. Here are 10 simple steps to include in the home sale and buying process to avoid a last-minute collapse.

These days, the most common deal-destroyer is the denied mortgage, as lenders are very cautious amid the flood of foreclosures.

1. Require mortgage pre-approval

Sellers can minimize the risk of a denied mortgage by requiring buyers to furnish pre-approvals, which indicate the buyer meets the basic loan criteria. This is different from pre-qualification, which is a less "thorough" mortgage check that most prospective homebuyers go through.

2. Don't overprice the house

The seller should be careful not to over-price the home because, even if a buyer is willing to pay, the lender will balk if the appraisal says the home isn't worth enough to serve as collateral on the loan.

3. Specify mortgage terms

The seller can insist that the sales contract specify a buyer seek a mortgage with terms the lenders are likely to approve, such as a down payment of at least 20% and an interest rate that's not so low it will be difficult to find.

4. Allow plenty of time for mortgage approval

At least 60 day to 90 days is a good benchmark for making sure the mortgage approval process doesn't cause your sale to fail, instead of a 30 day to 45 day period.

5. Know your buyer's income source(s)

A self-employed buyer, or one dependent on bonuses or commissions, is less likely to get a loan than a salaried employee who's been with the same employer for many years.

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