Top issues that derail real estate closings
What lenders are scrutinizing may surprise you
By Dian Hymer, Monday, April 25, 2011.
It can take weeks for an offer to be ratified. Buyers and sellers often counter back and forth for weeks before reaching mutual agreement on both price and terms. In this case, it’s a good idea to re-evaluate the closing date in the contract before inking the final agreement.
Some buyers make offers that propose closing a certain number of days from acceptance of the contract, often 30 days. Even if you negotiate for a month, you will have 30 days, or whatever number of days agreed to in the contract, to arrange financing, complete inspections and close the transaction.
However, sometimes closing is to occur on a specific date, say June 1. If you start negotiating on May 1 and it takes a couple of weeks to arrive at agreement, you may not be able to close on time if you need a mortgage. It’s best to modify the closing date in writing at the time you go into contract.
One of the main reasons transactions don’t close on time is the mortgage approval process. Even though you may be preapproved by a lender, you will still need to provide additional documentation to satisfy today’s underwriters who scrutinize buyers’ finances zealously.
HOUSE HUNTING TIP: Be aware that you will be asked to document where the funds for the down payment and closing costs came from. It’s not enough to produce a cashier’s check or wire for the amount of cash necessary to close. You must verify the source of the funds in writing for the lender.
One buyer who had more than enough cash to close the sale decided to send money for closing from several different accounts, rather the one account that she said she’d draw on. This required additional documentation at the last minute from each institution that transferred money to close the sale.
Lenders not only scrutinize the buyer’s financial wherewithal before they approve a mortgage, they also examine the preliminary title and appraisal reports for the property. Sellers should have a look at a preliminary title report on their property before they put their home on the market to make sure there aren’t any irregularities. If there are, they can attempt to clear these up before the home goes on the market. Your real estate agent or attorney can help you with this.
Appraisals have not only delayed closings in recent years, they have caused some transactions to fail when the appraisal came in low and the buyers and sellers were unable to negotiate a satisfactory resolution. If the buyers need to switch to a different lender whose appraiser might have a different opinion of the value of the property, this will take time and can delay closing.
It’s also possible that an appraisal could come in so much under the contract price that the seller might not be in a position to close the sale. For example, if the property is listed for $1.5 million and the sellers owe $1.4 million, they could have a problem if the property appraised for $1.4 million or less.
Some buyers don’t want to pay more than the appraised value in this market. In this case, the sellers would have to be willing and able to bring enough cash to closing to cover their closing costs and any amount they might owe the lender. If the sellers were not in a position to do so, the sale becomes a short sale and would require lender approval.
A short sale, as defined by the National Association of Realtors, is "a sales transaction in which the seller’s mortgage lender agrees to accept a payoff of less than the balance due on the loan."
THE CLOSING: Short sales take time, which might be worth the wait if you are committed to buying the home at the right price.
Dian Hymer, a real estate broker with more than 30 years’ experience, is a nationally syndicated real estate columnist and author of "House Hunting: The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer’s Guide."
Contact Dian Hymer: Letter to the EditorCopyright 2011 Dian Hymer
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