Reposted from Forbes.
The closing marks the culmination of the home-buying process. You’ve found the perfect house — or at least an acceptable version – whether it’s a McMansion or minimalist home, and you’re confident that you can handle the home maintenance costs. Now, you just need to make the purchase official. However, there are several reasons why you may not close on time.
Appraisal Problems
There’s a reason why sellers are advised against overpricing their homes. Lenders can’t approve a loan for more than the appraised value of a property. And that may actually work in your favor, since it’s a red flag that you’re paying more than the home is worth, according to Patricia Maguire-Feltch, national sales executive at Chase Home Lending. “Closing may be delayed if the appraisal for the home you’re planning to buy comes in significantly lower than the offer amount,” she tells me.
If you really love the home — or you can’t really find another home in this tight market — you may not care if the home is overpriced, but that’s usually not the point. “Appraisals establish a fair market value for the property being sold, and are one of the final steps a lender must verify before issuing a loan,” explains realtor Anastasia Hartmann at ReMax. At issue: Lenders don’t want to loan more money that the home is worth. “They want the property to valued at or above the purchase price as a security to prevent any losses on the loan given,” she says.
Sometimes, the sellers may be motivated to sell, and they’ll cover the difference in price. Or you may love the home so much that you’ll pay out of pocket to make up the difference. However, Hartmann says it’s also possible that neither party has enough money to make up the difference in the purchase price. “A tough decision could always be made to lower that purchase price where both parties are still happy, to continue and make it to the closing table,” she says.
Documentation Issues
You need to submit a variety of documents during the home buying process. And, if even one is incomplete, inaccurate, or missing, you won’t close on time. Some lenders are not as good as others in making sure the loan gets closed on time, and sometimes it’s because the buyers haven’t gotten all the info necessary to the lender in a timely manner,” says Bill Golden, realtor-associate broker at Keller Williams Realty Intown Atlanta. “Contracts have dates in them and there are consequences to not meeting those dates.”
According to Adrian Bell, realtor at Mountain Sage Living in Phoenix, Arizona, resale transactions close on time more than 90% of the time. But when they don’t, he tells me it’s usually for one of two reasons. “The first reason is a documentation issue with a lender, which is why you need to know not just your lender’s rates/fees, but their track record and reputation for closing on time,” Bell says. (His second reason is listed further down in the article.)
Open Or Expired Permits
If the seller did home improvements, like a kitchen remodel, or new floors, there may be open or expired permits, says Romina Grinberg, realtor associate with Brown Harris Stevens in Miami. “It’s possible that they are not aware permits are still open until the closing agent gets a city/county report,” she says. “It’s in buyer’s best interest to have the seller take care of them before they close on the property.” That’s because if you close on the home, those permits become your problem.
Title Issues
Before a home can be sold, all title issues must be resolved. And Donna Deaton of RE/MAX Victory + Affiliates in Liberty Township, Ohio, tells me this is a common issue in the Cincinnati area. “In Ohio, you must have a clear title/deed to transfer to another buyer, and that’s why an attorney-owned local title company is critical in my opinion.”
So, what difference would that really make? Deaton tells me that many LLCs are making quick flips on homes that may have numerous missed city violations and more. “It is imperative to have a trusted title company working on the buyer’s behalf, and be aware of those title companies that are not local and insist on you using their services only,” Deaton says.
Financing Process
Failing to pay attention to financial components of the homebuying process is a first-time home buyer mistake. “Your closing could be delayed and your loan may be denied if any of the information you provide is inaccurate or changes significantly prior to closing, i.e., you take on more debt, like buying a new car,” Maguire-Feltch warns. That’s why if you’re buying a house, avoid other major purchases.
Maguire-Feltch also says this is why it’s important to receive conditional approval, not just prequalification before you make an offer on a house. “It’s also important that you understand what you can afford and stay within your means, since this will help you avoid falling in love with a home you cannot afford,” she says.
However, broker Tate Kelly of Coldwell Banker Warburg in New York notes that often, delays are out of the buyer’s (or seller’s) control. “There is a lot of red tape, and various departments within the bank are involved in different phases of the lending process,” Kelly says.
He adds that it’s possible some financial statements could be out of date since the mortgage process started, or the lock rate may have expired. “If there is one little hiccup, miscommunication between buyer and bank or an interdepartmental bank misunderstanding, unforeseen red flags, or small clarifications, this can delay a closing over and over again,” Kelly explains. “And, then you just have to wait for the bank to give the all clear to close.”
Home Inspection Problems
If the home inspection reveals significant issues, such as structural problems or the need for major repairs, Grinberg says negotiations between the buyer and seller may be required, leading to a delay in closing. “Home inspectors may uncover hidden issues in less accessible areas, such as the roof or behind the walls,” she notes.
This is one scenario in which you’ll be glad the closing is delayed. Many sellers may be unaware of these problems and find out during the inspection, too – and that’s why you never want to skip the home inspection. “It can help you uncover costly repairs, like water damage, electrical issues, etc., you could be responsible for paying for if you don’t address them prior to closing,” explains Maguire-Feltch.
HOA/Condo/Co-op Boards
If you’re trying to buy a home with a homeowner’s association, or if it’s a condo or co-op home, be prepared for a host of other issues that could delay closing. “HOA disclosures that include unresolved, and often not previously communicated issues/violations with the seller, can delay closing,” Bell says.
If the home is part of an HOA, also expect this process to take time. “Delays can occur if the HOA requires additional documentation, has a lengthy approval process, or requires an interview with new buyers,” Grinberg explains. Also, she says that in some condos, the board members may only meet once a month to review and approve applications.
This view is shared by agent Alana Lindsay of Coldwell Banker Warburg. “In the world of ever-complicated New York City real estate, a lot of the time, it comes down to either underwriting delays or delays with the co-op board,” she says. “The board could be taking a very long time to review your board package and schedule your board interview or even give you a decision after the board interview,” Lindsay explains.
Tips To Help You Close On Time
You can’t control every aspect leading up to closing, but it helps to actively address every issue that you can control. Maguire-Feltch recommends educating yourself on all aspects of the home buying process before you get start. “It’s also important to work with experienced professionals, including a real estate agent and home lending advisor, to help you navigate the process.” In addition, she recommends companies, like hers, that promise an on-time closing — or eligible customers get $5,000.
In addition, it greatly helps if all parties work proactively to address problems on time. “This requires buyers and sellers to approach the real estate transaction process with transparency, realistic expectations, and a willingness to address and resolve issues that may arise,” Grinberg says.