You have a closing date and assume everything will be fine. But what happens when you approach that date and your loan is nowhere near ready to close? Unfortunately, it happens. Knowing the top reasons closings get delayed can help you prevent them from occurring.
Not Getting Pre-Approved
The first step any buyer should take is getting pre-approved for a mortgage. This way you know exactly how much loan you can afford. You’ll also know that you qualify for the loan based on your provided documents. The pre-approval letter will state the amount you can borrow, the loan program, and any conditions you must satisfy.
If you aren’t pre-approved, it’s a guessing game. You don’t know if you qualify for a loan and what conditions you may have to satisfy. Oftentimes, outstanding financial conditions delay the closing. Lenders can’t clear your loan to close until you satisfy all conditions. If you don’t provide all necessary documents such as 30 days of pay stubs, 2 years of W-2s, two years of tax returns, and two months of bank statements, you could delay the process.
Obviously, the easiest way to avoid this is to get pre-approved and provide all necessary documents up front during the pre-approval process. Don’t wait until you’ve found a home to look for financing. Do that part first and then you’ll know what you need in order to get the loan to closing on time.
Not Providing the Sales Contract Right Away
Just because you have a pre-approval doesn’t mean you can close anytime soon. The lender needs to clear the property too. As soon as you sign a sales contract, you should give it to the lender. With the sales contract in hand, the lender can start the process of ordering the appraisal and title work.
The sales contract includes important information including the closing date, the sales price, and any conditions you agreed to during negotiations. The lender needs all of this information to finalize your loan and get it to the closing table.
Once you get pre-approved, it’s easy to think you can do what you want, but that’s not the case. Lenders will re-check all of your information, including your employment status. If you change jobs after pre-approval and before closing, it changes the dynamic of your loan.
Lenders need to verify your employment with the new lender and evaluate your income. They may require that you are at the job for a period of time before they’ll approve your loan. Each lender has different requirements. Some may allow you to be on the new job for 30 days, while others may require a longer period. If you change jobs, talk with your loan officer first to see how it may delay your closing and/or affect your loan.
Ruining Your Credit
Lenders also recheck your credit before the closing. If you go and spend a lot of money, racking up credit card debt or opening new accounts, you can ruin your approval. If you miss important payments, paying them more than 30 days late, that can affect your credit rating too.
Lenders typically pull your credit again right before the closing. If your credit score dropped enough, it could cause you to lose your loan approval. At the very least, the lender may delay the closing in order to figure out if you are still a good risk. This is especially true if you overspent and increased your debt-to-income ratio.
Depositing Cash in Your Bank Account
Any money you will use for your home loan must be seasoned. This means it must sit in your account for at least 60 days. If you make large cash deposits that don’t coincide with your regular income, lenders will question it. They may worry that you took out another loan that isn’t reporting on your credit report yet. This could cause a delay in your closing.
Avoid making deposits in your bank account beyond what you already had verified. Use another bank account or hold onto the money until you get through the closing. Any suspicious activity could delay your loan closing.
Issues With the Appraisal
Unfortunately, there’s not much you can do with appraisal issues. If the value comes back lower than the price you agreed to pay, it will delay the closing. The lender needs to look into the issue to determine the reason for the lower appraised value.
In some cases, the appraisal goes to an appraisal review. This could be with the lender or appraiser. If the lender does an internal review, it will delay the process slightly as they figure out the reason for the lower value. If the lender wants a second appraisal or second opinion, it could delay the process even further.
The best way to avoid this is to do your homework. Work with an experienced realtor that knows the potential values of homes in the area. You can also look up values yourself. Is the asking price of the home within the limits of recently sold homes or is it much more? If it exceeds the current values, you may have trouble on your hands.
If the appraised value doesn’t meet the sales price, you’ll have a few options:
- Pay the difference between the sales price and max loan amount based on the appraised value
- Re-negotiate the sales price with the seller
- Walk away from the sale
Title issues are another issue you can’t control. The lender will order a title search after you sign a sales contract. The title search looks for existing liens on the property, with the exception of the current mortgage. If there are liens, the lender will require that the seller satisfy the liens before you can close on the loan.
The title search may also turn up other ‘owners’ or those with property rights. This is common in cases of divorce or inheritance. The seller will need to satisfy these issues, proving that the only owner is the seller themselves. If someone else does have ownership rights, they must be in agreement with the sale of the home. This can delay the home closing process.
Avoiding all of these issues ensures that your loan closes on time. Of course, no process is perfect and things happen. If you do experience a delay, work closely with your loan officer to figure out a way to get the loan to the closing as quickly as possible.