Purchasing a home is one of the most significant events in your life. So much goes into the home-buying process, whether it is your first home, the home you start a family in, or your dream home. It may seem like a marathon from start to finish. Boundary Title in Huntsville, AL understands the stress that can come with purchasing a home and getting to that closing table. To prepare you, we’ve pulled together 10 things to remember and watch out for ahead of closing on your new home.
10 Problems that May Prevent Your Home from Closing
Just because your offer was accepted and you feel like you have purchased the home doesn’t mean the deal is done.
Closing is a formality within the real estate process. It is the final act of signing all the paperwork, handing over any dues, and officially getting the keys to the home. There are a few factors that unfortunately can prevent the house from closing.
1. Termite Damage Seen During Inspection
An insect inspection on homes is often required by lenders. The insect inspection is also paid for by the buyer or seller and protects the lender’s interest in the property. The inspector is looking for any signs of damage by termites, carpenter ants, or other insects that are munching on the home.
If an insect inspection is not required, it may still be in your best interest to get one done. You would hate to move into your new home and find out it has termites. Often and unfortunately, people abandon property when they discover termite damage after moving in.
If signs of an infestation are discovered during an insect inspection, the home cannot close until the affected areas and fixed. The seller is responsible for handling the situation. If they refuse to, then you as a buyer have the right to walk away without repercussions if your buyer’s agreement has the right contingencies.
2. Low Appraisal Value
An appraisal is a property valuation done by a licensed appraiser. The professional will take measurements of the home and compare the market value of similar homes in the area to determine the value of the home.
Appraisals are required by the lender and paid for by the buyer. If this value comes in too low, the mortgage lender will not lend more than the home’s appraised value. The seller will have to lower the selling price or you as the buyer will have to pay cash for the difference. In some cases, a second appraisal from another company may be requested.
3. Liens Or Claims On The Title
Liens or claims on the home’s title are where Boundary Title & Escrow comes in.
Title insurance protects you, as the buyer, and the mortgage lending company against any future claims on the property.
Boundary Title & Escrow will perform a title search to uncover any undisclosed liens or claims on the property that you want to purchase. If the search comes back clean, the transaction can move forward. If it is not clean, the transaction cannot move forward until all are resolved. All real estate transactions require a clean title to be able to close.
Good title insurance will also cover the costs of defending your ownership rights in court if a past claim is missed, the property closes, and something comes up. When you choose Boundary Title & Escrow, you can rest assured that our team of talented professionals has years of industry experience and will work diligently to ensure all titles are clean or liens and claims are found.
4. Failed Home Inspection
This may be the most common reason a home doesn’t close. Your buyer’s agreement or purchase offer should have a contingency written into it for the home inspection. If the home fails the home inspection, you as the buyer can back out of the deal without penalty — as long as you have that contingency. You may forfeit the earnest money if you do not have a home inspection contingency clause and decide to back out due to a failed inspection. Missing one simple clause can cost you thousands of dollars.
If you want to negotiate repairs to be done by the seller and stay in the deal, it can delay closing. Another option is to have the seller credit you the money to complete repairs yourself. This money would be provided at closing.
5. Cold Feet
This real estate closing delay is pretty simple — one party gets cold feet. Most purchase agreements have contingency clauses to account for failed inspections, infestations, title liens and claims, and other reasonable situations. Closing can still be paused or even stopped altogether when one party — either the buyer or the seller — decides not to move forward for no reason other than doubts and nerves.
Buyers who back out will lose out on their earnest money. Again, this is a couple of thousand dollars. The earnest money helps compensate the seller for the time and potentially lost sales when the home was off the market.
If the seller decides not to sell anymore, you as the buyer have a legal right to collect damages.
6. Unable To Secure Financing
Being prequalified for a mortgage loan is not the same as being pre-approved.
There are many factors that can hinder someone’s ability to secure a mortgage loan, and they aren’t always the person’s fault. Interest rates can skyrocket or someone’s job may change unexpectedly. Other factors can actually be the person’s fault — lying on the loan application or making a larger purchase on credit causing their credit score to drop.
Buyers should not make an offer on a home without official pre-approval, and sellers should not accept an offer without loan pre-approval. You as the buyer should talk to your lender about how to avoid your financing falling through. If the loan is dropped, the bank is required to give you a detailed explanation.
7. Located In A High-Risk Area
You may be aware if the home is in a flood zone. This is often stated on MLS listings or other real estate sites you might be searching. Certain states will also require a disclosure report during escrow and before closing. If the home is in a hazard zone, your mortgage lender may require you to purchase hazard insurance on top of your homeowner’s insurance. This is a significant cost on top of your monthly mortgage payment and may not be feasible in the end.
Ask your agent or the city planning department to know about potential natural hazards in the area you are interested in. You will want to determine what type of insurance to get and how much the extra cost might be before putting an offer down.
8. Home Isn’t Insurable
If a significant insurance claim was submitted by a previous owner, this can hinder your closing process. These types of claims may be water damage or mold and other insurance companies may think it is too risky to insure the property.
Homes that are deemed not insurable cannot be financed. A purchase can only go through if you are an all-cash buyer. This is because mortgage lenders require buyers to have homeowner’s insurance for the length of the loan or until they sell the home.
A home that isn’t insurable may not be in your best interest to purchase anyways….
9. Discrepancies Between the Good Faith Estimate and the HUD-1
A mortgage lender will provide what is called a Good Faith Estimate twice during the process:
- First when you get preapproved for a loan
- Second when you put in an offer on a property
This details what you can expect to pay in closing costs and is, in fact, an estimate. It is a rough draft of what you may expect to see on the HUD-1 which is given at least 24 hours before closing. The Good Faith Estimate should be within 10% of the HUD-1, but some lenders add unnecessary charges.
If there are major differences, ask the seller to extend the closing date so you as the buyer can secure better financing with another mortgage lender.
10. Paperwork Errors
So many parties are involved in the home-buying process and everything has to be signed on the dotted line. Most paperwork is actually done electronically, but that doesn’t mean it is foolproof. Misspelled names, incorrect addresses, or even the sale price is incorrect and delay a closing.
In this situation, you as the buyer may be required to pay the seller a penalty for every day closing is delayed. This will depend on whose fault the errors are and what the contingency is. The worst-case scenario is that the seller does not agree to extend closing and drops the deal. Best-case is that the seller agrees to extend without penalty.
Getting To The Closing Table With Boundary Title & Escrow
Closing on a home and transferring ownership can be stressful for all parties involved. Let Boundary Title & Escrow in Huntsville, AL take some stress away. We will perform a thorough title search to make sure there are no liens or claims against it and that it is clean. We can also manage the escrow account and provide title insurance, knocking out even more of the stress.
This material is provided as a courtesy and for educational purposes only. Please consult your title professional for specific information regarding your situation.