Buying a home? Plan for a late closing
If you’re taking out a mortgage to buy a home, prepare yourself for a late closing.
The most recent Realtors Confidence Index reports that less than half of home sales are finalized on time.
While timing a real estate closing perfectly is largely out of a buyer's control, here are 3 smart moves you can do to move the process along.
Smart Move 1. Get your financial paperwork in order.
“Home buyers must be prepared to provide a much greater amount of documentation than they ever had to before to substantiate the figures in their loan application," says Kevin Conlon, cofounder of San Diego-based real estate investment firm Meridian Pacific Properties. "It can be a frustrating, time-consuming and intrusive process, particularly for self-employed buyers who must go to extraordinary lengths to prove their income.”
Smart Move 2. Be an active participant.
“Your agent, lender and escrow contacts are professionals, but this is your transaction," says Sam DeBord, managing broker and Realtor with Seattle-based agency Wiegand and DeBord. "A buyer needs to be double-checking that all of the timelines and milestones in their transactions are being met in a timely manner.”
Smart Move 3. Know what to expect.
“Our best advice to buyers? Get everything to your lender as soon as you can and be aware that there will be last-minute requests," says Realtor Wendy Slaughter of RE/MAX Advantage Realty in Fulton, Md. "Be flexible and know that the settlement date is not set in stone. It’s a fluid date, and it’s what we’re all aiming for, but it will likely be pushed back.”
Home sales are finishing late for a number of reasons, but tighter financing guidelines and appraisal problems top the list.
“Virtually all of the data on a buyer’s loan application must be documented to the lender by the buyer, which has substantially increased the amount of time it takes to process a loan through underwriting,” Conlon says.
Underwriters also face a high volume of work, and when they don’t get to a borrower’s file until days before the sale closes, it may be impossible to close the loan on time.
Slaughter says underwriters are looking for discrepancies between loan application disclosures and borrowers’ real-life situations. They may add last-minute conditions to a loan approval, and the process of clearing those conditions can delay.
Appraisals slow down closings for two main reasons: tighter appraisal regulations and purchase offer prices that are higher than appraised values.
If your sale closes late, even if it’s not your fault, there could be significant consequences.
Slaughter says the biggest impact can be not having a place to live.
In a worst-case scenario, the seller could cancel the contract or even sue the buyer for damages.
A late closing isn’t always a disaster, however.
“Some buyers are affected very little. They just extend the contract and close,” DeBord says.