If you're in the process of buying a home, you'll find it isn't unusual to pull your wallet out. You will do so time and again because all the things that go into the purchase process, from applying to a mortgage, to moving cost, test and home inspections, to making an earnest money deposit, your checkbook will get quite a bit thinner.
What might surprise you is to learn that your scheduled closing date isn't going to be on the day and time you were expecting. Any experience real estate professional, mortgage broker, and title agent will tell you that it isn't unusual for settlement date to be rescheduled for one or more reasons.
The reason for this is there are so many moving parts to the transaction. There are several different entities which will be involved, and, synchronizing all of these individual dynamics is nothing short of challenging.
Understanding Real Estate Settlements
Getting your mortgage approved after applying is just the first of many steps in buying a residential property. During the period from your purchase offer acceptance by the seller and the closing date, a lot of things must happen. These different elements R to protect you, as well as the seller, your lender, your insurer, and the other entities involved.
"All your hard work has paid off. The purchase contract is signed. Now you can just sit back and wait to get paid. Wrong! According to recent Realtors Confidence Index surveys conducted by the National Association of Realtors, between 10 percent and 14 percent of pending transactions don’t close. Another 20 percent are delayed but eventually close." --Realtor Magazine.com
After your home loan is approved, you'll have to hire a home inspector, a pest inspector, and perhaps a contractor if there are problems with the house. The title company will conduct a search of the property in official records, the insurer will do the same, and, your lender will also be monitoring your finances. That's right, your lender will be checking-up on your finances to ensure there's no new risk involved.
Most Common Reasons for Real Estate Closing Delays
Sometimes the weather plays a role and causes a closing to be postponed. For example, here in Sarasota, if a tropical storm or hurricane is off the coast, no insurance company will not underwrite the property because of the possibility of damage. Inclement weather side, there are other reasons a closing could be delayed:
- The inspections uncover problems. The home inspection reveals the plumbing is ready to burst, the electrical wiring isn't up-to code, or there's a small problem with the roof. Or, the pest inspector finds termites burrowing through the wood framing. The very reason for hiring inspectors is to find problems, problems which can cause the transaction to fall through or be delayed.
- The appraisal comes-in lower than the purchase agreement. If the appraisal, which is initiated by your lender, comes-in lower than the agreed purchase price, you'll either have to come-up with the difference or determine why there's a disparity. Regardless of the reason, a low appraisal can delay a closing, or, in the worst case, cause the financing to fall through.
- The title has clouds on it. It could be a mechanic's lien for unpaid contract work or a judgment against the current owner. Clouds are title defects and they come in several forms. The title company handling the transaction will uncover these, and, depending on the circumstances, the closing might be delayed or the home legally unsellable for a lengthy period.
- The financing is withdrawn. If you pull all the cash out of your bank account, open a new line of credit, or change jobs, these are reasons that lenders pull financing from borrowers, simply because there's added risk. Don't make any large financial changes until you are well past the closing date.
- The home can't be insured. To your very unpleasant surprise, your home insurer went through history records and found a claim by the current owner of the property. Just like lenders, insurers do what they can to reduce risk and a previous claim might make the property uninsurable.
- The GFE and HUD-1 statement have a big disparity. The Good Faith Estimate is what the lender is required to provide you with by law and it should be within 10 percent for accuracy. The HUD-1 statement is the actual line item expenses. If these significantly differ, the transaction will be delayed at least, and at most, the transaction won't go through.