Some first time home buyers do everything can to get ready for a mortgage, from meticulously keeping their credit clean, to saving-up a sizable down payment. Then, after having their purchase offer accepted, they make certain mistakes which delay the closing date. Even some homeowners who have bought and sold a residence before are guilty of blunders which push back the settlement date.
What’s most important to understand is that even though a mortgage loan application has been approved, that alone isn’t the end of the home buying process. There are several steps between an accepted purchase offer and settlement day, or what’s commonly referred to as “closing.”
Things to Know about Real Estate Settlements
When you purchase a home, even if it is with cash, there are many things which typically occur after your offer is accepted by the seller. The closing essentially wraps-up all the details, and, this is when the title is transferred from the current owner to you. Take note that title is passed from the existing homeowner to you, even if there is a mortgage or lien holder.
“Many mortgage lenders require borrowers to meet certain guidelines. For example, VA loans are only available to eligible veterans, while qualifying mortgages have their own list of restrictions. Your lender will be able to tell you which loans you qualify for.” —Realtor.com
Prior to the actual day of closing, the home is appraised to compare its actual market value with your purchase offer. In addition, a title history search is conducted, and, the lender will likely have run what’s called a “soft credit check,” or, one that’s a follow-up to the initial credit check when your mortgage was first approved. The home inspection, pest inspection, insurance history, title history, financing, and more will all be part of the final closing.
Top Home Closing Delays in Real Estate
Though most home purchases do go through to settlement, it isn’t uncommon for closing to be delayed. However, there are some instances when the title transfer isn’t possible, which can occur, for the following reasons:
- The home cannot be insured. While it isn’t fair to the buyer, the seller might have made an insurance claim in the past. Because an insurance claim search is conducted prior to closing, it will reveal the claim and to insurance companies, might classify the property as too risky to underwrite.
- There are clouds on the title. Liens on the property are one of the most common things which derail home sales, be they from unpermitted work, to lawsuits, to unpaid property taxes or homeowner’s association fees.
- The appraisal is not high enough. Lenders, as a rule, do not approve mortgage loans which exceed the market value of homes. If the appraisal does not come-in at or below the agreed purchase price, the financing will fall through.
- The financing falls through. A low appraisal is just one reason financing falls through. There are more, such as new credit lines taken out by the borrower, emptying of the buyer’s bank account, and changing jobs.
- The GFE and HUD-1 statement differ substantially. The GFE or Good Faith Estimate, is a document which lists all the estimated costs associated with the mortgage and closing. The HUD-1 statement is the actual amounts of those line items. If these differ considerably, or, more than 10 percent, the closing will be delayed until the issues are resolved.
- One or more inspections reveals problems. Be it the pest inspection or the home inspection, if either reveals problems with the home, you as the buyer likely won’t proceed with the transaction, and, the lender might balk.
Aside from these are simple clerical errors, which could wind-up costing you big time. Speak with your buyer’s agent and engage in a strategy to seek the best possible outcome.