The housing market is practically on fire.
According to Redfin Corp, the median home sale price in the United States surpassed $360,000 in December 2021. The average appreciation of real estate has increased by 15%. In 2019, the rate was 4%. As the first quarter of 2022 draws to a close, the market shows few signs of slowing down.
This uptick is a direct result of a sharp decline in home listings. Buyers are snapping up houses at a dizzying rate. Demand seriously outweighs supply. This makes it even more crucial for homebuyers to get all their ducks in a row before embarking on the house-buying journey.
After all, the last thing you need when you find your dream home is to become blindsided by a major hiccup as you approach the closing day.
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What Happens At The Closing Appointment?
The closing appointment signifies the official culmination of the home buying journey.
After months of perusing listings and fielding an endless stream of paperwork, buyers are finally able to walk away with keys to their new home.
The closing appointment can stretch up to two hours. During the appointment, you’ll have to sign all the legal documents in order to certify the purchase. Closing documents generally include a promissory note, a mortgage note, escrow disclosure, and a deed of trust.
At this point, buyers also have to pay the closing fees.
Steps Involved in the Closing Process
According to the Ellie Mae Origination Insight Report, the average time to close a home purchase is 51 days. This number can be higher or lower, depending on multiple factors such as the buyer’s financial readiness, home appraisal, and a clean inspection report.
The house closing process involves the following steps:
Application:
The buyer submits the application as part of the pre-approval process. The application form requires you to submit personal information. This typically includes your Social Security number, current address, income, and the mortgage loan amount requested.
Disclosure:
The lender prepares the terms of the loan and calculates the projected mortgage payments. Generally, this phase requires less than a week to complete.
Documentation:
The lender requests documentation in support of the application. Specific documents include income statements and information about other assets you might own. Based on how organized you are, this step will take about a week.
Home Inspection:
After signing the contract, you need to secure an appointment with a home inspector. The bank allows you 5-15 days to complete the inspection.
Appraisal:
An appraiser makes a thorough assessment of the house to determine its value. This allows the lender to ensure that they’ll recover the amount owed in the event of a foreclosure.
Underwriting:
At this stage, underwriters evaluate your documentation and determine your eligibility. The process can take up to three days.
Final Walkthrough:
During the walkthrough, you can check that the seller has moved all possessions. You can also make sure that nothing was damaged since your last visit. If the sale of the house includes appliances, you can confirm that the seller has left them behind.
Cleared to Close:
Cleared to Close (CTC) means that the lender has determined that you meet the conditions to close on your mortgage. After the CTC is issued, you must wait three days before signing documents. This allows you sufficient time to fully understand the contract and point out any errors.
Closing and Funding:
This step of the process can take up an additional day. At this juncture, all the signed documents are reviewed one last time before they are registered with the county.
Common Reasons for Delays
Although some delays are unavoidable, your journey to becoming a homeowner will advance a lot smoother if you plan ahead. Otherwise, the following reasons can push back the closing date and create unnecessary stress.
1. Busy Lenders:
During the height of the pandemic, lenders were too busy to cater to the needs of new clients. In today’s active market, delays are common due to the high mortgage application volume. This situation is often beyond the control of all parties involved.
As a buyer, do your best to collect all the documents that you’ll need for closing. Maintain a folder that includes copies of your latest pay stubs, bank statements, and tax returns so that everything is organized.
2. Inexperienced Loan Officers:
If your loan officer is inexperienced, you may encounter numerous issues during the closing process. Your loan officer may even make mistakes that could cost you time and money. A forgetful lender, or one that provides wrong information, can further complicate things.
Find an experienced lender who will diligently work with you to navigate the escrow process. The loan officer should have excellent communication skills and help you stay on top of all the documents you’ll need for approval.
3. Incomplete Application:
It takes about a day to submit your application. However, errors or omissions on the form can result in delays.
Try your best to fill out your application form as accurately as possible. Be sure to submit accompanying documents that help verify your income.
4. Missing Documents:
If you’re unable to provide documents on time, your application will be delayed. That said, sometimes submitting information about assets is not as straightforward. For instance, owning a rental property may mean providing even more details… and that will require additional time.
Be quick to respond to document requests from your lender in order to keep the momentum going.
5. Low Appraisal:
If the appraisal falls short of the asking price, the lender may pause the closing process and commission a second appraiser.
In this case, you may have to renegotiate the sale price with the seller. You could also offer extra cash to cover the difference between the sale price and the appraised value.
6. Conditional Approval and Underwriting:
Sometimes underwriters require extra documentation before they approve your request for a loan. This may happen when they are mostly satisfied with the mortgage application but suggest additional conditions.
The best thing to do is to, again, maintain open communication with the lender and supply requested documents in a timely manner.
7. Deposit Not Cleared:
If the buyer does not submit the deposit on time, their check may not clear before the closing.
Try to deposit the down payment well in advance. Alternatively, you can bring a certified or cashier’s check to the closing appointment.
8. Unusually Large Deposit or Withdrawal:
If the lender determines unusual account activity, the closing process will hit a pause. For instance, if a large sum of money is transfered in or out of the buyer’s account, the lender will require an explanation.
A large deposit might signify that you took out a new loan that you will have to repay. A large withdrawal could indicate that you won’t have enough cash on hand to close. Both situations cast a poor light on the buyer and complicate the closing process.
To avoid this situation, try to maintain stable account limits.
9. Change in Buyer’s Credit Report:
If there is a significant change in your income or you make a large purchase, the lender may choose to re-evaluate your profile. This will result in a delay.
Avoid opening a new credit card or running up the balance on an existing card while the closing process is active. Hold off on switching jobs until after you sign the dotted line. In case you lose your job, notify your lender immediately. Keep the lines of communication open.
10. Title Issues:
An unresolved lien on the property can push back the closing date. Other factors could include heirs laying claim to the property, renovations made by the seller without obtaining permits, and conflicts over property surveys.
To help you avoid this issue, it is best to hire a title company during the escrow process. The title company will ensure that the house legally belongs to the seller and that the Internal Revenue Service (IRS), the state, or any other party does not have ownership of the property.
11. Problems at the Final Walkthrough:
If sellers neglect to remove their belongings from the property or walk away with appliances that both parties had agreed to include in the sale, buyers can request an intervention.
As a buyer, you cannot necessarily control this situation. What you can do is notify your lender immediately so they can intervene on your behalf.
12. Homeowner’s Insurance:
If you neglect to purchase homeowner’s insurance on the property, the lender will delay the closing until proof of insurance is submitted.
The moment your offer is accepted, you should start shopping for an insurance quote.
13. Inconsistencies on Loan Documents:
If there are inconsistencies like misspelled names on the loan documents, you will proceed to close only after all the necessary corrections are made.
According to the law, buyers are allowed three days to go over loan documents before signing. During this time, you should carefully study the documents and notify the loan officer immediately in case you find errors.
14. Incomplete Repairs:
If the seller fails to complete repairs on time, the resulting negotiations, as well as the repairs, will further push back the closing date.
Try your best to schedule the inspection soon after your offer is accepted and then request repairs. Also, you can ask the seller to credit you money so you can take care of the repairs yourself after you take ownership.
The Bottom Line
Owning a house is a quintessential part of the American dream. But as exciting as it seems, advancing through the formal steps of homeownership requires a fair amount of diligence and perseverance.
Working with an experienced lender and doing your part in staying organized will allow you to transition from a househunter to a homeowner with the least amount of difficulty.
Have a question? Ask the Wallethub community.
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