If you’re about to close on a house, it’s important to expect the unexpected. Even if you think everything is going smoothly, there are still some issues that can pop up. Below are a few of the most common problems you’ll see during the closing process.
Keep reading to learn more.
1. Money Issues
Loan slowdowns: “Cash is king” is a saying that certainly rings true for purchasing homes. Paying for a home in cash means the loan approval part of closing is eliminated. If everything else checks out, cash can speed up the champagne-popping. For the majority of home buyers, a mortgage is necessary—but results in a longer closing.
Type of mortgage: The type of mortgage used to purchase a home affects the length of closing. Regular mortgages take between three and four weeks to close in most instances, while Federal Housing Administration (FHA) and Veteran’s Association (VA) mortgages may take six weeks or longer. VA loan options require verification of military service, and similarly, FHA loans require verification from a government agency. These extra steps mean extra time.
Down payment: In some cases, buyers will be required to put more money down than originally planned to close. In turn, this has the potential to cause a delay if the buyer doesn’t have those extra funds immediately accessible. If the down payment is a gift, appropriate documentation and proof are required as well, which can slow down the closing process.
2. Seller complications
Title disputes: Did the former sellers get in trouble with Uncle Sam? Well, a tax lien or any other issue involving the title must be resolved before you can move forward to close on a house. In other cases, the title might simply have the wrong signature or attestation. Whether the dispute is large or small, it must be settled before you can close.
Foreclosure: If a home is in foreclosure proceedings, it can take more than a week to get a payoff from the mortgage company, plus additional legal fees.
Bad final walkthrough: When the buyer goes to check out their new digs, but see the seller hasn’t held up their end of the bargain—trash everywhere, the house stripped of valuable finishings, or incomplete repairs—the closing process can be delayed or stopped completely.
3. Buyer delays
Self-employment: If the buyer is self-employed or has multiple sources of income, additional verification of documents is necessary. So, make sure you’re organized!
New expensive purchases before closing: If records reveal the buyers have been spending wildly on furnishings for their new home, the bank might view them as untrustworthy borrowers. Mortgage approvals are partially tied to debt-to-income ratio, so throwing that ratio off-kilter could delay the closing or stop it altogether. As much as possible, avoid taking on any new debt.
Credit issues: Zero credit history or a history riddled with financial missteps makes for a riskier borrower in the eyes of the lender. The lender will require additional verification and documents to prove financial stability.
No preapproval: Preapproval is a step beyond prequalification and acts as a conditional commitment from the lender for a specific loan amount. As such, it requires considerably more from the prospective borrower, like a formal mortgage application, a down payment estimate, and other evidence of the buyer’s financial standing. If a buyer doesn’t have preapproval, closing will be slowed down.
4. Lender Slowdowns
Verification issues: Closing on a home involves verification of a wide variety of documents. If there is incomplete or inaccurate documentation—even misspelled names—that will also mean closing comes to a standstill.
Low appraisal: Before a mortgage is approved, the bank appraises the home to ascertain its value. If the appraisal is lower than the purchase amount, the closing date will be pushed out longer. The buyer must either make up the difference or renegotiate the price because banks won’t provide a loan for more than the property is worth.
Inexperience: Do you remember what it was like on the first day of a new job? You might have been a little intimidated and unsure of what to do. Unfortunately, a loan officer’s first day could happen when you’re attempting to close on a house. In turn, this might mean closing comes to a standstill due to human error.
Takeaways: Expect the Unexpected During Closing
Even if you feel confident during the closing process, it’s important to keep an open mind and be ready for change. Keep this list in mind as you begin closing so you can make the best of closing and hopefully any issues will be quickly resolved. Your dream home awaits!