Your offer has been accepted on your dream home and you were pre-approved for a mortgage. Now it’s just a little more paperwork until you’re hosting your first BBQ, right? Not necessarily. Even one slip-up before closing can cause stressful delays. Watch out for common stumbling blocks that can stall your closing by following these six tips:
1. Avoid a big purchase or a new credit card
Right before you close, the lender will do a final check on outstanding debts and credit inquiries. Any new debt could present a problem, so hold off on buying new furniture or applying for a credit card while waiting to close.
“I tell people to be as boring as possible: Go home, don’t spend any money, just watch TV until I get you the keys,” says Brad L’Engle, a certified mortgage planner in Folsom, California. “I had a client take out a Mervyn’s credit card to save 10 percent on a $33 purchase, and that popped up during the approval process and delayed it,” he says.
Whatever it is you think you need, wait until after your closing to buy it.
2. Don’t change or leave your job (if possible)
Try to avoid any changes in your job status while waiting to close. If there are any, inform the lender right away. Judy Richardson, a realtor at Red Oak Realty in Oakland, California, recently represented a buyer who was pregnant and took her maternity leave early. “When the lender called to verify employment, her employer said she was on maternity leave.” The buyer ended up needing to obtain written confirmation from the employer that she would return following her maternity leave, and the escrow closed three days late.
“The regulations around the loan are very strict, so buyers should be extraordinarily diligent with everything regarding credit, banking and employment when escrow has yet to close,” Richardson says.
3. Think twice about appealing an appraisal that’s lower than the purchase price
Since the subprime mortgage crash of 2008, the recession and subsequent financial reforms, there is much tighter regulation of the appraisal process. Gone are the days when homes automatically appraised for the purchase price offer. In a competitive market where many homes receive multiple offers, it’s not uncommon for the appraisal to come in lower than the winning offer.
“If the appraisal comes in low, you can appeal the appraisal or the parties can renegotiate the contract,” L’Engle says. Either of those options will require more paperwork and potential delays, however. Because an appeal involves paying for another appraisal and there are no guarantees of success, many buyers and sellers choose to negotiate the contract instead.
4. Closely monitor the status of agreed-upon repairs
Whether it’s a termite problem or a new water heater, repairs can cause delays if not negotiated and executed properly. Any repairs the seller agrees to complete must be done satisfactorily before the buyer and lender will close a deal. “Sometimes sellers and buyers will go back and forth for weeks about repairs to the property,” L’Engle says. “If it was an issue flagged by an appraiser, now the appraiser has to go back out and verify that it’s been done.”
5. Avoid any open disputes on your credit report
Lots of people find erroneous information on their credit reports and dispute it, but if you are applying for a mortgage, think twice. After you file a dispute, the creditor has 30 days to respond. Lenders usually won’t approve a mortgage until the dispute is removed.
Being proactive is the best way to avoid this problem: “It’s always important to run your credit annually so you can deal with fixing any credit issues prior to getting too deep into the process of looking for a home,” Richardson advises.
6. Be sure the title company checks for problems prior to escrow
Most of the time, the title company will uncover and resolve any outstanding liens or other problems with the title long before escrow. But if not, problems can arise. “If a title company does not pull a pre-escrow [report] prior to the property coming on the market, then a ‘surprise’ lien—even as small as a garbage lien—can cause delays,” Richardson says.
“I once had a transaction where a business lien was found on the seller side the day before closing,” she says. “Any lien needs to be addressed prior to close of escrow or the property will not transfer. These liens can take days or even months to clear.”
One more piece of advice: Slow it down
Brad L’Engle has one suggestion for all home buyers and their realtors: “In a tight housing market, many agents feel the only way they can get their client’s offer accepted is to close quicker. I try to tell people to write [the contract] for 45 days and give themselves a little bit of breathing room. What’s another two weeks? That way you will have a smoother, more relaxed transaction.”
Get approved on a mortgage before hunting for your dream home. When it’s all settled, give me a call and let’s get you started in living your Maui dream!