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<\/p>\nGetting a mortgage and\u00a0buying a house involve a lot of moving parts. If one piece falls through, it can cause everything to come to a screeching halt. Closing is one of the crucial steps in the homebuying process that can make or break a real estate transaction.<\/p>\n
Although closing issues can cause delays for buyers and sellers, knowing where the problems lie can help you effectively manage them. Understanding what can go wrong during the closing process can also help you feel prepared if things don\u2019t work out as planned.<\/p>\n
With all this in mind, let\u2019s walk through some common issues that buyers and sellers may encounter when closing on a house.<\/p>\n
<\/p>\n
Taking out a mortgage\u00a0is the most common way to finance a home purchase. The mortgage application process puts a borrower\u2019s finances under the microscope, so it\u2019s not uncommon to discover a mortgage fell through even after the borrower gets the initial go-ahead from a lender.<\/p>\n
This could happen because the buyer didn\u2019t actually get initial mortgage approval, also called\u00a0mortgage preapproval. A mortgage could also fall through if you have changes in your financial situation. Let\u2019s take a look at how these examples can affect whether your mortgage falls through on closing day.<\/p>\n
Some lenders may issue \u201cpreapproval\u201d letters based on information not fully verified. Technically, that\u2019s a process called\u00a0prequalification. Your subsequent mortgage application could be denied or approved for significantly less money upon closer inspection.<\/p>\n
Prequalification doesn\u2019t take as deep of a look into your financial info as initial mortgage approval. For example, the process typically won\u2019t subject you to a hard credit check and some other important verifications of your financial strength.<\/p>\n
A buyer\u2019s financing could also fall through if their financial situation experiences big changes after the buyer has received initial approval. Before a lender gives final approval on a loan, they do another check on the buyer\u2019s finances.<\/p>\n
If the buyer\u2019s debt-to-income ratio (DTI) is suddenly inflated \u2013 for example, they start financing a new car \u2013 or their\u00a0credit score\u00a0dropped significantly, they could jeopardize their initial mortgage approval. Issues can also arise from taking a new job or opening up a new credit account. Borrowers may also want to avoid making a big purchase that cuts into the amount that was set aside as reserves.<\/p>\n
Unfortunately, there isn\u2019t a ton that can be done after the fact unless the solution is fairly simple and doable. For instance, the buyer could make a larger\u00a0down payment<\/a>\u00a0if a lender approves them for less than they expected. A buyer can also look for alternative financing, but that will further delay the home closing date.<\/p>\n The best solution in this case is prevention. Buyers may want to:<\/p>\n If you\u2019re a seller, only consider offers that come with an initial mortgage approval letter. They show that the lender has verified the borrower\u2019s information. All-cash buyers will be asked to provide a\u00a0proof of funds letter\u00a0showing they have the money on hand to complete the transaction.<\/p>\n<\/div>\n Before you can purchase a home using a mortgage loan, your lender will require a\u00a0home appraisal<\/a>. An appraiser will evaluate the property and determine what the house is actually worth<\/a>, independent of its list price.<\/p>\n The lender will only give you the amount of money the appraisal says the house is worth. If it appraises low, the buyer and seller must negotiate how they want to make up the difference.<\/p>\n The remedies for a\u00a0low appraisal<\/a>\u00a0are fairly simple. When an appraisal comes in low and you\u2019re still determined to make the sale work, you have a few options:<\/p>\n You also have the option to challenge the appraisal. However, you\u2019ll have to provide good reasons to support your claims. This could mean digging up\u00a0comparable sales<\/a>\u00a0showing that the house should be valued higher. This could also mean providing proof that the information the appraiser used to value the property was incorrect.<\/p>\n<\/div>\n Most buyers will want an inspection contingency included in the purchase contract. This gives the buyer the ability to have a\u00a0home inspection<\/a>\u00a0completed to identify potentially costly issues with the property. Even if your purchase agreement doesn\u2019t include contingencies, you should still ask for a home inspection. This gives you the full picture of what you can expect with repairs if you buy the home.<\/p>\n No house is going to be in perfect shape. However, if an inspector flags anything that could cause serious problems down the road, the closing process could be delayed.<\/p>\n Closing delays can happen if the buyer and seller can\u2019t agree on how to handle\u00a0problems revealed by the inspection<\/a>. A buyer can walk away from a home purchase if they aren\u2019t satisfied with the remedies offered by the seller. Or, maybe the buyer doesn\u2019t think the inspection issues are worth the fight at the end of the day.<\/p>\n If you\u2019re determined to sell your house, you can offer to have the repairs completed before the final walkthrough. You can also leave the repairs for the buyer to complete and offer concessions to offset their costs. Be open to negotiate with the buyer, unless you can find another buyer who\u2019s willing to\u00a0purchase the house as-is<\/a>.<\/p>\n For buyers, it may be tempting to downplay significant issues if you really want the house. Closing delays are rarely ideal. But, coming to an agreement on what repairs will be done before you purchase the house is worth it.<\/p>\n<\/div>\n Your lender will have a title company complete a\u00a0title search<\/a>\u00a0before you can purchase the home. This process ensures that no other parties have some sort of claim to the home.<\/p>\n The title search protects the buyer (and the lender) if there are unpaid taxes or other\u00a0liens attached to the property<\/a>. The process also identifies any entities that may be able to claim legal ownership of the home.<\/p>\n The real estate transaction can\u2019t proceed until title issues are resolved and the title has been cleared. This process can sometimes take a while and can cause lengthy delays.<\/p>\n For sellers, make sure:<\/p>\n Buyers, unfortunately, don\u2019t really have much control over preventing or fixing title issues. They can, however, purchase an owner\u2019s title insurance policy. Buyers are usually required to pay for a lender\u2019s policy as part of their\u00a0closing costs<\/a>, but purchasing an owner\u2019s policy protects them if title issues arise after closing.<\/p>\n<\/div>\n Prior to closing, a buyer will typically take one more look at the house after the seller has moved out. The\u00a0final walkthrough<\/a>\u00a0allows the buyer to confirm that the house meets the conditions agreed upon in the purchase contract.<\/p>\n Here\u2019s a short to-do list for a buyer and their agent to consider during the final walkthrough:<\/p>\n If any contingencies are specified in the contract but haven\u2019t been satisfied, that puts your closing in jeopardy.<\/p>\n A good\u00a0buyer\u2019s agent<\/a>\u00a0will be in close communication with the seller\u2019s agent. They\u2019ll make sure that contingencies are being taken care of in a timely manner. If the seller is unable to complete repairs before closing, they might consider negotiating some\u00a0concessions<\/a>. For example, the seller may give the buyer the funds to complete the repairs later on. Otherwise, the closing may be delayed.<\/p>\n To avoid delays, be mindful of deadlines for any stipulations you have in your contract. Make sure you\u2019re on track to have everything completed.<\/p>\n As the home seller, ensure you\u2019re following the contract and leaving everything that was included in the sale. Make sure you leave the home in good condition and fix any damage that occurred during the move-out process.<\/p>\n Sometimes a real estate contract can take a wrong turn simply because one party no longer feels good about it. Although uncommon, a buyer or seller could suddenly decide to\u00a0back out of the home purchase<\/a>.<\/p>\n Whether you\u2019re buying a home or selling one, the home purchase process can be an emotional one. If one of the parties involved starts to feel unsure about their decision, it can cause some serious delays. It could even end the home buying process altogether.<\/p>\n If you\u2019re a seller whose buyer backs out unexpectedly (and outside of any contingencies that would allow them to walk away), you at least have some insurance thanks to the buyer\u2019s\u00a0earnest money deposit<\/a>.<\/p>\n The earnest money deposit is typically a small percentage of the total purchase price. It shows the seller that a buyer is serious about purchasing their house. At closing, the money will be applied to the buyer\u2019s down payment and\/or closing costs.<\/p>\n But if the buyer walks away for a reason not specified in the contract, the seller keeps the earnest money. If you\u2019re worried about a potential buyer walking away before closing, you can request a larger earnest money deposit, which will increase the buyer\u2019s incentive to go through with the deal and leave you in better shape if they don\u2019t.<\/p>\n If you\u2019re a buyer whose seller suddenly tries to cancel the transaction, you have legal remedies available. Both you and the seller\u2019s\u00a0real estate agent\u00a0can sue for damages. Unfortunately, if the seller is set on canceling the sale, it may be better to move on after your earnest money is returned.<\/p>\n<\/div>\n A 2021 National Association of REALTORS\u00ae (NAR)\u00a0Confidence Index Survey<\/a>\u00a0shows that 73% of home purchase contracts are settled on time. Of those that aren\u2019t, 22% are delayed but go on to close. Only 7% of contracts are terminated, with \u201cissues related to obtaining financing\u201d being the most common reason for delayed or terminated home purchase contracts.<\/p>\n Even if you hit some bumps in the road, have faith that you\u2019ll still get to the finish line. The\u00a0time to close on the house<\/a>\u00a0might just be a bit longer than you expected.<\/p>\n<\/div>\n\n
\nClosing problem #2: The home appraisal is holding up closing<\/h2>\n
The solution<\/h3>\n
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\nClosing problem #3: An unsatisfactory home inspection<\/h2>\n
The solution<\/h3>\n
\nClosing problem #4: Title issues<\/h2>\n
The solution<\/h3>\n
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\nClosing problem #5: Unfulfilled contingencies<\/h2>\n
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The solution<\/h3>\n
\nClosing problem #6: Cold feet<\/h2>\n
The solution<\/h3>\n
\nHow often do closings fall through?<\/h2>\n