Finding the right house and negotiating an offer can be pretty labor-intensive and even stressful. Throw in problems with closing into the mix, and you’ve got yourself a bonafide headache. In a perfect world, a deal would close without a hitch. Unfortunately, problems do occur 0 though not very often – which can delay closing and sometimes even kill the deal altogether.
Here are 5 issues with closing that can arise and how to handle them.
1. There Are Problems With Securing Financing
Anything can creep up during escrow that can mess with your mortgage. If you make a large purchase on credit, for instance, you can drastically alter your debt-to-income ratio. This important little number – which represents the ratio of your monthly debts compared to your monthly income – is one of the most important factors that your lender uses to assess whether or not you’ll be able to comfortably make your mortgage payments after meeting all of your other dent obligations. Any time you borrow more money, your debt-to-income ratio goes up, which isn’t a good thing.
You may have credit issues that occur after you initially closed on a home that can damage your credibility as far as your leader is concerned. If you miss a loan payment, your credit score can be directly affected, which in turn directly impacts your ability to secure financing.
To avoid any problems with lending, speak with the mortgage provider right before closing to make sure there are no issues, and resolve them if there are any. In them meantime, be sure to keep up with your current loan payments – including your credit cards – and don’t take out any additional loans after you apply for your mortgage.
2. The Appraisal Came in Too Low
Your lender will send in an appointed appraiser to assess the value of your home compared to the purchase price you agreed to. Why does the appraisal matter so much? Your lender can be put in a risky position if more money is extended than what the home is actually worth according to the current market.
If you ever default on your mortgage in the future and go into foreclosure, there’s a big chance that the lender will lose a lot of money. Banks want to ensure that the money loaned out to you is protected, and appraisals provide a means to do that.
Low appraisals are more common when there is a bidding war on a home and the winning bidder offers more than the home is really worth just to outbid the other prospective buyers. A low appraisal can stop a deal in its tracks. However, your real estate agent will do everything possible to save the deal, and may go back to the seller and ask to request a price reduction with an appraisal on paper showing that they’ve asked for too much. It might just work; after all, everyone wins if the deal goes through.
3. You Find Unpleasant Surprises During the Final Walk-Through
Your real estate agent will likely insert a clause in your purchase agreement allowing you to take one final walk-through the day before closing. It will provide you with the opportunity to see if the condition of the home is just as it was when you agreed to buy it.
Sometimes a major issue will present itself that wasn’t there the last time you visited the home. Whether the seller completely neglected the property, a severe storm wreaked havoc on it, or it was vandalized by outsiders, the problems may be serious enough to cause you to back out of the deal.
In order to avoid any unpleasant surprises, be sure to have thorough inspections of the home even before the final walk-through. Request that the owner inspects the home after a big storm to check for any flooding or moisture.
Finding a last-minute issue doesn’t always have to compromise the deal. Try to negotiate with the seller to have the expenses related to repairing the problems covered by the seller.
4. There’s an Issue With the Title
Checking the title on a property is a very important step, as it can uncover any issues that you would be stuck with after the home closes. There may be liens or covenants on the home that the previous owners never dealt with that will now become your problem. There can also be ownership issues that actually prevent the current sellers from being legally allowed to transfer title.
Having the chance to investigate the title on the property before the deal closes can give you enough time to discover any issues that come with the home. Any problems found can be a hassle, but the ability to have them resolved prior to closing can save you a lot of headaches in the long run.
5. Your Closing Costs Are Higher Than You Thought
Finding out that you owe more money than you initially thought can be a real downer. You need to budget for a variety of closing costs, including home inspections, property taxes, and home insurance. However, these expenses can sometimes be higher than expected, and will put you in a position to have to dish out extra cash for them.
Ideally, your lender will give you a good idea of what it will cost to close on the deal, but sometimes things can change. Thankfully, new mortgage disclosures give you more time to look over detailed documents that will outline exactly what you owe. Don’t skimp on this step, and make sure you take the time to read through it so you’re not stuck paying more than you initially budgeted for.
The Bottom Line
Any one of these situations can put a deal at risk, but they’re not very common. While they are possible, there are things that you and your real estate agent can do to help prevent these scenarios from happening, or handling them appropriately should they occur. Be prepared for the unexpected, and trust that your real estate agent and lender are doing everything necessary to make sure the deal closes. After all, that’s exactly what everyone wants.