So, you finally decided to ditch the rentals and buy yourself a home. You’ve shared drinks with real estate agents, groaned through numerous open houses, and probably gave more than a few side-eyes to the viewers who seem to be there only for the cookies. After all the work, you finally put in an offer that was accepted, and now you’re waiting for closing and wondering why it’s taking so long.
One of the questions most first time home buyers tend to ask is: “How long does it take to close on a house?” The truth is there isn’t a definitive answer. Typically, it takes 30-60 days. However, between your offer, loan approval, and escrow, there are a lot of events and contingencies that could occur to disrupt this time frame..
“Once your offer gets accepted, generally speaking, most loan contingencies are about 17 days” says Yawar Charlie, a Director of Real Estate at Aaron Kirkman Group. This means the buyer has 17 days to provide the necessary paperwork to the underwriter in order to get the loan approved”.
As soon as the final approval for a loan comes in, the escrow — or third party loan documentation — can close in a matter of days. However, additional occurrences like unresolved property damage, final walk through issues, and last-minute requests for additional documentation by the lender can cause delays. Cash transactions generally tend to move faster because the buyer is not always subject to contingencies like lender approval, appraisals, inspections, or negotiation of repairs. Houses financed through mortgage tend to take a little longer. From the time an offer is made, up until the final closing, Charlie says, “it is important that all parties remain on standby to provide documentation in a timely manner, otherwise, the escrow can be delayed”.
Here are 10 factors that contribute to delays in home closing — and how you can get in front of them.
Closing on a Home: 10 Factors That Speed Up or Slow Down the Process
1 Cash or Pre-approval
The amount of time needed to close a home depends largely on how much green you’ve got handy — or on your lender, assuming you don’t have cash. This is because a couple of things have to be taken care of before a home loan is given to anyone.
One of the ways to get around this is to “get pre-approved even before you begin your home search” advises Karen Condor a home insurance and real estate specialist with Expert Insurance Reviews. To do this, you’d need to meet with a lender who would check your credit and verify your documentation in order to approve a specific loan amount for a time period. Note that a pre-approval is different from and more valuable than a pre qualification which is merely an evaluation of a buyer’s creditworthiness used to determine an estimate of the amount he or she can afford to borrow.
2. The Appraisal
If you don’t already have a pre-approval letter, it’s totally fine. But you should be prepared to wait a little longer. Before a lender approves your loan, an appraisal will have to be done on the home either to make sure it’s really worth what you’re paying or that you’re not asking for extra cash to foot, say, your phone bill. This makes it easier for losses to be recouped in the future, supposing a foreclosure happens.
If the appraisal comes in too low, the seller is either going to have to reduce the price or you’d be required to pay the difference in cash. It’s possible to get a second opinion from a different appraiser since appraisals are, more or less, an opinionated view drawn out of data.
Either way, renegotiating with the seller or getting a different appraiser will cost you extra time. Although you are responsible for footing the bill, the appraisal will be ordered by the lender so make sure you nudge them to place the order on time, suggests Charlie. “One of the prominent reasons for closing delay is a failure to order the appraisal on-time. It forces loan approval to be delayed”.
3. The Inspection
Supposing everything goes well with the appraisal, the lender is also going to order an inspection of the home. There’s two of those, home inspection and pest inspection, although not all lenders require one for pests. The reason for this is that, if a buyer moves into a home with a pest problem they could possibly abandon the home, leaving the lender liable. If anything is noted as wrong during the inspection, further investigation and/or renegotiations with the seller could cause delays.
“I always encourage my clients to do all of their investigations early in the process” says Charlie. “You might find out while you’re doing inspections that a room is not permitted. If that room is not permitted, it may not count towards the square footage of the home which can directly impact if you get your loan or not.”
Some purchase offers include an inspection contingency clause that allows buyers to back out without a penalty should the home inspection reveal serious problems. If your contract doesn’t have this clause, however, you may end up losing your hard-earned money.. You may be able to dispute these charges but that will only lead to more delays.
You know how an insurance company can refuse to insure a car because it has too many claims or damages? Well, the same goes for houses. If a major insurance claim has been made on a home by a previous homeowner, insurance companies might deem it too much of a risk and therefore refuse to insure it. Lenders usually require you to maintain homeowners’ insurance until you’ve paid off the mortgage so unless you’re an all-cash buyer, this can be a deal breaker.
Also, lenders may require that you purchase hazard insurance in addition to the home owner’s insurance if your home is located in a high-risk area. This kind of insurance is usually expensive. It is important to begin inquiries on your proposed home insurance as early as possible, adds Condor. “All lenders require a policy to be in force prior to approving a loan”so failing to do so until the last minute would definitely delay closing.
5. The Title Search
Aside from the insurance, a title search is usually required to ensure that no one has a legal claim to the property. This could be anyone from the state or IRS to the seller’s relatives. What usually follows is title insurance, protecting you against any future claims to the property. If during the search a claim against the property is discovered, it would need to be resolved before you can proceed.
“Be prepared to have your attorney negotiate with the seller’s attorney if any surprise issues pop up based on the title report” advises David Reischer, Real Estate Attorney and CEO of Legal Advice. It is not uncommon to have issues that need to be cleared up or other small conditions that need to be renegotiated based on learning new facts that were not initially understood when the original offer was submitted. These items can cause a delay if they are significant..
6. Errors and Discrepancies
A successful home appraisal and inspection don’t always mean you get your loan approved immediately. In some cases, financing might fall through due to errors and disparities in your loan application. It could be anything such as new debts, errored documents, an increase in interest rates, credit score changes, employment, or even changes in marital status. Either of this could mean a change in your financial ability. It is important to note that your application would not go to the underwriter until your documents are complete and even then, a discrepancy would mean you have to start all over again.
7. A Good Faith Estimate
When you put an offer on a property and or get pre-approved for a loan, the lender is expected to give a Good Faith Estimate that explains the closing cost associated with getting financing on a home. This is basically a rough draft of the HUD 1 form i.e. statement of settlement costs. The Good Faith Estimate is expected to be a close estimate but sometimes, lenders tend to reel in clients with low estimates. In such a situation, getting the lender to revisit the excessive charges or securing alternate financing can also cause a delay.
Tips for preventing delays when closing a home
- Start inquiries on homeowners’ insurance early on. All lenders require a policy to be in force prior to funding a loan.
- Double-check all documents created during the process. Taking a few extra moments to review for spelling errors, incorrect amounts, or missing pages will save you hours or even days of delay.
- Do not make any major changes in your life, your finances, or your credit during the closing process. This could change your Debt to Income Ratio triggering a redo, delay, or rejection of your loan application.
- Fulfill the request regarding all documents asked for by a realtor, lender, and all other parties. This sounds simple, but it is not common; in fact, realtors and lenders are pleasantly surprised when potential buyers are well-prepared.
8. The Type of Mortgage
It should be noted, at this point, that there are a variety of mortgages all of which have an effect on how long it takes to close. Conventional loans, mortgages not secured by a government agency, typically take about four weeks to process, FHA loans, mortgages insured by the Federal Housing Association take about six weeks while VA loans, mortgages issued by lenders and guaranteed by the US Department of Veteran Affairs might take even longer. Each loan could cause potential delays depending on your situation.
“An FHA loan can be delayed if a borrower applies for it too soon after bankruptcy, foreclosure, or a deed-in-lieu of foreclosure” says Condor. Usually buyers within the FHA category are expected to wait a mandatory seasoning period before applying for a new mortgage. Delays with conventional mortgages delays could be attributed to “problems like a high number of applications with the lender, and incomplete or inaccurate loan application or supporting paperwork”. For VA loans, there are a few more reasons for possible delays: a) additional paperwork, including Minimum Property Requirements, b) shortage of VA appraisers” and c) proof of a Certificate of Eligibility to confirm military service.
9. Miscellaneous Contingencies
The home closing process is not all numbers and regulations. Sometimes, seemingly trivial contingencies such as a bad final walkthrough, where the previous owner left trash everywhere, or more substantial ones like a divorce or a pending sale could also affect the expected closing date. Other times it could be as a result festivities, federal holidays or, dare we say, a pandemic. These situations usually mean that individuals and regulatory bodies involved in your home closing process would be unable to work. There are also rare cases, where the seller backs out last minute, thus, delaying the closing process even further.
10. Last-Minute Changes
Once a lender gives the final approval, what’s left is to close on the mortgage but, don’t get to dancing yet. As a buyer, it is advisable not to change anything on your record until the closing is completed. We’re talking job changes, furniture layaways, car buying, and delinquent credit card payments. Essentially any of these major changes could alter your debt-to-income ratio, forcing your lender to “redo the underwriting process” Condor says. Only after the loan is funded can it be considered final. If you’re refinancing on an already purchased home, and I’m guessing you’re not, the closing doesn’t necessarily mark the end, there are three extra business days — a span of time known as the rescission period — that allow the homeowner a chance to change their mind and/or cancel the loan, but, that’s an entirely different topic.
So, there you go. Buying a home is an exciting time. The wait times can be excruciating and exhausting. But if you pay attention to these steps, you’ll be handed the keys a bit sooner.