Closing on a home is the last big hurdle to get through before you finally get to move your family — and the millions of boxes — into your new home. Though this is the last stop on the way to actually owning the home, there’s still a chance that things could go awry through all the exchange of paperwork and ultimately, money.
The closing process is a critical point on the real estate transaction timeline, so it’s crucial to make sure that all of your ducks are in a row and that you understand what your responsibilities are so that your deal won’t fall through.
To prepare yourself for the big event, here are a few surprises to watch out for when closing on a home and how to best prepare for them when they occur.
Surprise #1: Your current financial information doesn’t match up with what you gave your lender originally
Unless you are purchasing a home with cash, you will need a loan in order to complete the transaction. In order to qualify for a loan, you will need to be deemed financially fit enough to borrow money. The lender will look at your income, employment status, credit history, and the amount of money that you have in the bank to determine whether you present a good credit risk. Once you’ve been pre-approved for a loan, it’s really important to make sure that your financial situation is the same at closing as it was when the lender originally looked things over.
“Lenders are a big piece of the puzzle. Having a good lender is crucial. You might get pre-approved, but if they didn’t do a thorough job and then something pops up with their qualifications, you might not always qualify for the loan,” says Alli Evans, realtor for Keller-Williams in Santa Barbara, California.
The key is to make sure that you are giving all the most current information to your lender. Avoid large purchases and changing jobs while you’re in the middle of a real estate transaction.
“When you’re talking about hiccups during closing it’s changes from info that’s already been verified. Whether it’s that you’ve had a job change, you’ve incurred more debt than you told us about. Or that there’s 3,000 dollars on a credit card that you didn’t account for,” says Austin Lampson, a mortgage consultant with On Q in Santa Barbara, California.
Surprise #2: You need money up-front before you’re even close to closing
When you put in an offer on a home, the seller wants to know that you are a faithful buyer and that you’re not just going to put offers on a bunch of homes to bide time to take them off the market. To secure the home you’ll have to put down what is called an “earnest money deposit,” which will typically be about 1–2% of the purchase price. This earnest money is not extra, but will go toward your down payment.
Surprise #3: The appraisal for the home is lower than your offer
When you put in an offer on the house, it was most likely somewhere near the seller’s asking price. Before your lender will loan you the money for your home, they will order an appraisal to ensure that the home is indeed worth that amount of money. If the appraiser comes back and tells the lender that the home is actually not valued as high as the agreed upon price of the home, then this can cause some delays in closing.
If the appraisal is significantly lower than the purchase price you have three options. You can make up the difference between the appraised value and the agreed sale price with additional down payment funds (the amount your lender is willing to loan you will always be based on the lower of the sales price or appraised value). You can also order another appraisal in the hope that it is closer to the purchase price or you can walk away from the deal. If you had an appraisal contingency in the purchase agreement, then you will be able to back out from the sale without any financial harm. However, if you waived this contingency then you can lose the “earnest money deposit” if the deal falls through because of appraisal issues. The best thing to do to prevent this scenario is to make sure you have good advisors guiding you along the way, Lampson says.
“I really think the the best thing anyone can do upfront is build your team. It’s a process. It can be super easy or super stressful depending on how organized you are,” Lampson advises.
Surprise #4: Transferring money takes time
The rest of the down payment and any closing costs you’re responsible for are due on the day of closing. You may have the option to wire the funds from your bank, but this can take time. In the modern era of technology, you might expect things to go through instantaneously, but a large sum of money will take a while to transfer to the correct account. If your money isn’t present on closing day, it could seriously tie things up.
You could come to closing with a cashier’s check in hand, but don’t just assume you can just go to the bank and obtain one on the spot. All in all, to avoid any last-minute snags when it comes to funds, just be sure that you are prepared with the correct amount of money by confirming with your lender and/or closing agent at least a few days before closing.
Surprise #5: There are mistakes in your documents
Real estate professionals are people, and sometimes people make mistakes. Misspelled names or missing documents won’t necessarily cancel a deal, but it’s important to pay attention to spellings and correct numbers so that simple mistakes won’t delay things. This can really get tricky if you have movers on the way with your things and the closing process is down to the wire.
Again, a good way to prevent this is to make sure that your team surrounding you is watching out for these types of simple mistakes so that you can move through closing as quickly as possible.
Surprise #6: Something isn’t right during the final walk-through
Before signing the final paperwork, you should ensure that everything in the home is the same as it is described in the purchase contract, which is why a final walk-through with your agent is so important.
“Sometimes if you ask for all the appliances like washers and dryers, you want to make sure those are actually still there when you close. That’s why you walk through the property. Sometimes the seller will take things. It’s happened,” Evans says.
If you find that something is missing or not working correctly, be sure that you inform all parties immediately so that you and the seller can come to an agreement on what they will pay for and what you will pay for.
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