Your offer on a house has been accepted. Now, you just can’t wait for closing day. You shouldn’t have to wait too long, as the average time to close on a house ranges between four and eight weeks. If everything goes smoothly, your closing is closer to the former. If there are issues, expect your closing to tend toward the latter, or even longer.
The Importance of Preapproval
Before you go looking for a house, it’s crucial to have your funding preapproved by a lender. Preapproval is not the same as prequalification, as prequalification does not include income verification. When you are preapproved, the lender has already checked your credit history and verified your employment information, and can give you the specific dollar amount you are eligible to borrow. This preapproval is generally good for up to 90 days. The last thing you want to do is have your offer accepted on a house and then find your lender won’t give you sufficient funds, or maybe even agree to a mortgage. Overall, the lack of approved funds is the most common reason for delaying of a closing.
FHA Loan Option
Home buyers who don’t have the money for a large down payment may opt for a Federal Housing Administration loan, which requires a down payment of just 3.5 percent of the purchase price. If you have an approved FHA loan, expect the closing process to take between 30-and-45 days. The FHA per se does not underwrite its loans. That’s the job of FHA-approved lenders, who know what is required for this type of mortgage.
Reasons for Closing Delays
While various factors can alter the typical time to close on a home, one of the common reasons lies with mortgage underwriting. Unfortunately, an inexperienced loan officer is a major contributor to closing delays, so try to work with an experienced lender. Your lender puts together your loan file, which is then forwarded to a mortgage underwriter. If documents are missing or the underwriter has questions about your application, the lender will contact you for the information. While some issues with the underwriting process are out of your control, there are others which you should resolve before applying for the mortgage loan. Probably the most important of these is your credit report. Pull your credit report, and that of your spouse or partner if you are buying a house together, and take a good look. If you have a record of late payments for credit cards, car loans or other debts, or have items sent for collection, you should rectify them long before applying for a mortgage. The underwriter will want all sorts of documents from you, including pay stubs. Getting any documentation to the underwriter immediately upon request speeds up the closing on a house timeline.
The lender’s workload also plays a role. Late winter into early summer is a busy time for lenders because that’s when the majority of people purchase new homes. Families with children often want to move into their new house over the summer so that they can get acclimated and the kids can attend their new school on the first day of classes. If you have the flexibility, consider purchasing your new home in a less busy time of year when your lender has a lighter workload, which can speed up the process of closing. It’s always wise to ask the lender how long they expect the turnaround process to take.
Dealing with Appraisal Issues
Before approving your mortgage, the lender will have a professional appraisal done of the property. The appraiser examines the house, noting its condition and any improvements made, and then researches the price of comparable properties, known as “comps,” sold relatively recently in the area. If the appraisal comes in low, there’s a problem. No lender will loan an applicant more money than the house they want to purchase is worth. Although the buyer pays for the appraisal, the actual client is the lender, and the appraiser is always independent. If the appraisal comes in low, the contract requires renegotiation. Usually, sellers are open to a lower price, since they know another appraisal will likely come in with a similar number. However, you may find a seller adamant about getting the agreed-upon price. If that’s the case, you can either walk away from the deal or pay the difference in cash. One word of warning: It’s not a good idea to pay more for a house than its appraisal value, no matter how much you love the place. Even if you don’t plan to move for a long time, life happens, and you don’t want to end up losing money if forced to sell.
While a home inspection is not the same as an appraisal, it is also an important part of the closing process. The home inspector goes over the house thoroughly, noting any issues the seller needs to address and any necessary repairs. There’s always a possibility that the inspector will uncover something serious, such as a cracked foundation that threatens the dwelling’s structural integrity. If that’s the case, your contract should have a contingency allowing you to call off the deal. Otherwise, you can negotiate with the seller to either have the repairs made or have the money needed for the repairs subtracted from your purchase price.
Common Title Concerns
Your lender will work with a title company to research any title issues with the property. The lender requires a clear title for mortgage approval. If the title company finds liens on the property, such as tax liens or mechanic’s liens from unpaid contractors, the seller must resolve them before the sale. The title company ensures the seller is the actual owner of the property, and that there aren’t other claimants. You’ll pay title insurance at the closing to protect your investment in case some party with a claim appears down the road.
Buying and Selling Contingencies
If your contract contains contingencies that you must sell your present home before buying your new one, or the seller must purchase a new home before moving out of theirs, that can delay the closing.
Closing Day Actions
The day has finally arrived, and in a short time, you’ll join the homeowner ranks. At the closing, expect the real estate agents for both you and the seller, the attorneys for both you and the seller if such professionals have been retained, your loan officer and a title company representative. You’ll need to bring all relevant documents unless your attorney is handling the matter. You’ll also need a cashier’s check to pay for the down payment and related closing costs. These costs include title insurance, the loan origination fee of 1 percent of your mortgage, private mortgage insurance, if applicable, recording fees, appraisal fees, property taxes and discount points. Overall, closing costs, except for the down payment, are usually between 2-and-5 percent of the purchase price. Your lender must provide you with a breakdown of the closing costs at least three days before the closing. Check this document carefully and if anything seems amiss, contact your lender for an explanation and possible correction. Once you’ve signed the paperwork and paid your money, the closing on a house timeline is officially over.
A graduate of New York University, Jane Meggitt's work has appeared in dozens of publications, including PocketSense, Zack's, Financial Advisor, nj.com, LegalZoom and The Nest.