Lew Sichelman
It takes about 43 days, on average, to go from signing a contract on a house to reaching the settlement table. And between those dates, bunches of things can go haywire and scuttle the deal.
The buyer may be short on cash to cover the various closing costs – possibly because they ran out and bought a truckload of furniture to fill their new abode. Or maybe the appraisal comes in too low, forcing the seller to lower their price or the buyer to come up with more money.
Here are some common issues that can delay closing – or even cancel the sale.
Big Buys and Job Changes
If you must purchase a new vehicle, wait until after you close on your mortgage. Unless you pay with cash, a new automobile loan will raise your debt-to-income ratio. That could push you into a higher interest rate or disqualify you for funding altogether.
The same goes for any big-ticket items you are purchasing with a credit card, like furniture or appliances. Just because you have already been approved for a mortgage doesn’t mean you can go out and spend freely. Most lenders run a second credit check a few days before settlement, and if your credit picture has changed, they can pull the rug out at the last minute.
Ready to make a job switch? Wait until after closing, especially if you are going to work in a different field. Lenders want to see several years of continuous employment – if not with the same employer, then at least in the same industry. Again, lenders will check a few days prior to closing.
And don’t move large amounts of money in and out of your bank accounts. If you do, lenders will want you to document why.
If Junior wants help buying his first car, wait to co-sign his loan until after your own closing. Putting your John Hancock on a loan makes you totally responsible if your youngster fails to make the payments. As such, it can bump your DTI ratio into the danger zone.
Keeping Something in Reserve
Lastly, did you set aside enough money for both the down payment and closing costs? Did you also budget for homeowners insurance and property taxes?
There are any number of down payment issues that can arise, and any one of them can put your closing at risk. It’s best to have a little extra set aside – or a side deal with your parents for some cash if you need it.
By law, your lender is required to give you an estimate outlining the different costs related to your financing. But it is just that: an estimate. Certain fees are allowed to change, but not by more than 10 percent.
If you believe you are being overcharged, ask for a reduction or switch lenders. Either way, though, closing will be delayed.
In most sales, the contract depends on a number of conditions being met, the two most important of which are your financing being approved and an independent inspection of the property meeting your satisfaction. Another important contingency comes into play if the purchase depends on the sale of your current residence.
These clauses come with deadlines: The inspection must be performed by a certain date, for example, or you must apply for financing within a certain number of days. Missing any deadline could delay closing or cancel the deal.
Problems with the Property
Besides an examination of the house, there may be other inspections required – perhaps for radon or termites. If the house is on a well or a septic system, those must be found to be in good working order. If a problem is discovered, the necessary repairs could push your closing further out.
Closings are sometimes delayed through no fault of your own. Your agent, loan officer or lender might be to blame. Vital paperwork could become lost, for example, or maybe someone along the line failed to file a document. Keep on top of everyone involved and make sure everything is copacetic.
If the appraisal comes in too low, you’ll need to either make up the shortfall at closing or persuade the seller to lower their price accordingly. The latter approach means reopening negotiations with the seller, which is always difficult to do.
Lenders will order a title search of the property to make sure the seller owns the place free and clear. If there is an issue – say, a long-lost heir to the house is discovered, or the seller’s ex-spouse still has a claim to the place – closing could be delayed. Cross your fingers that the title company can clear up the problem quickly.
Most new communities, and lots of older ones, are run by homeowners associations. These groups collect dues from residents to cover maintenance costs for the neighborhood, including roads, amenities and landscaping. HOAs also sometimes require special assessments to cover costs not anticipated in the budget.
If the seller is behind on dues or failed to pay an extra assessment, someone will have to make up those fees, or else the lender won’t close. You must persuade the seller to either pay up or lower the house’s price to cover the difference. Otherwise, you’ll be on the hook for it yourself.
Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.
