So your offer just got accepted, and you’re now in the process of closing in your new home. Congratulations! Having a home purchase offer approved is like getting a runner’s high during a breathtaking marathon, and really, the celebration is well worth it.
But hold the champagne– the property isn’t officially yours just YET.
Before you get that precious key to your newly purchased home– which is commonly referred to as escrow– you may need to overcome a lot of pitfalls. And if you stumble on any of them, this much-awaited purchase may fall through and bring you back to square one.
Here are nine of the most common problems you may encounter during the closing of your home, and see what you can do to prevent or mitigate them.
Uncovering visible infestation
Lenders usually arrange a pest inspection on a home, done at the buyer’s expense, to ensure that there is no major damage by termites or carpenter ants. This request is to protect the lender’s interest in the property, as after moving in, homeowners who uncover termite problems often abandon the property–leaving the lender holding the bag.
If an inspection uncovers any evidence of an infestation, the problem areas should be attended to before escrow can close. If the problems are too severe or the seller won’t pay to fix them, you have the option to walk away, assuming your purchase agreement has the proper contingencies.
Property valuations conducted by an authorized party are known as appraisals. These are usually for taxation purposes, as part of home financing or selling a home.
After this process, the bank will have the home appraised again, at your expense, to protect the lender’s interest in the house, so if a foreclosure occurs, it can recoup its losses. If the appraisal comes in too low, the seller will have to lower the selling price, or you will have to pay cash for the difference. You may seek a more favorable second opinion from a different appraiser.
Issues with the Title
Title insurance protects you and your lender from future claims to a property. Should there be some lien or claim against your property, it would have to be resolved before the transaction can continue, as there must be a clear title for a real estate process to move forward.
Hire a title company to do a title search and issue title insurance during the escrow process. Doing so will ensure that no one else has a legal claim to the property you are looking to buy.
Having a home inspection contingency is important to have in a purchase offer. If a home inspection reveals a major problem, the buyer can back out without penalty. Without this kind of contingency, you may lose thousands of earnest money. If you decide to proceed, the process of negotiating with the seller to have the home repaired can potentially hold up the purchase process and delay your closing. Reduce or avoid this delay by asking the seller to credit you money to handle the repairs yourself at the property closing.
A real estate contract outlines justifiable reasons for a buyer or seller to back out without penalty. However, if you decide to cancel the purchase after waiving the contingencies, there’s a high chance you’ll lose your earnest money.
Your earnest money serves as financial ramification for the seller. It helps compensate the seller for the time when the home was off-market. Conversely, if the seller decides to back out due to a change of heart or because someone made a better offer, you will have a legal right to collect damages from the seller.
Financing falls through
In-the-know buyers don’t make offers on homes without pre-approval, which means getting a written loan commitment from a bank saying that it will provide you with a mortgage of a certain amount. In turn, sellers who want to avoid any hassle during closing don’t accept offers from buyers who aren’t pre-approved. Remember, pre-qualified DOESN’T mean pre-approved.
However, there are still some underlying factors that can prevent a loan from closing. Lies during the application, a sudden increase in interest rates, your job situation, or your credit score can be a few. Ask your lender how you can avoid problems like these. Potential lenders owe you an explanation if financing falls through.
The Home isn’t Insurable
If a previous homeowner made a significant insurance claim on your home, like water damage or mold, you’ll see it in the insurance records. It’s also usually why companies refuse to cover the house due to risks.
If a home is not insurable, you will not be able to buy it unless you are an all-cash buyer. Lenders require you to maintain homeowner’s insurance until you pay off the mortgage. Of course, even if you are a cash buyer, it probably isn’t a good idea to buy a home that isn’t insurable.
Good Faith Estimate and HUD-1 Differences
Your lender should give you a good faith estimate detailing the closing costs associated with obtaining financing on the home twice during the closing process. Once during your loan preapproval, and another when you put in an offer.
The reasonable faith estimate is a rough draft of the information on the HUD-1 form you receive at least 24 hours before closing. The good faith estimate should be a close approximation of what you end up paying—ideally within 10%. Should you receive unrealistic estimates and you can’t get the lender to drop the excessive charges, ask the seller to extend the closing date so you can secure alternate financing. Doing so will let you buy the property without getting ripped off.
Errors Delaying Closing on Time
Remember that there are many parties involved in closing escrow. Any mistakes will delay your closing, and depending on your purchase contract and whose fault it is, you may have to pay the seller a penalty for every day it’s late. The seller can even refuse to extend the closing date, and your deal could fall through. The best-case scenario? The seller could simply agree to extend the closing date with no penalty. After all, if the deal doesn’t close, the seller will also have to start again.
Social Media Post:
Congratulations on choosing your next home!👏 Now that you’re in escrow, you may need to overcome a lot of pitfalls⬇ to SUCCESSFULLY close the sale!💲🏠
Here are 9⃣ of the most common problems🤦 you may encounter during the closing of your home🏠, and see what you can do to prevent or mitigate them.✅
📍Click the link to read more➡