This Article Is About The Things That Can Go Wrong For Home Sellers Before Closing
Unfortunately, just because home sellers have a signed purchase real estate contract does not mean that the deal is 100% and that the closing will happen on time. The home selling process is a process where many things can go wrong. Delays are very common. There are many things that can delay or even kill the deal for home sellers.
Examples of potential issues are the following:
- issues with the title
- home buyer
- mortgage denials
- home inspection issues
- low appraisal issues
- There are many cases where the home buyer will just decide on another home while he or she is going through the mortgage approval process. The home buying and home selling process can be both an emotional and stressful process. As long as everyone from the home buying and selling team is all cooperating, things should go smoothly.
Team members include:
- home buyers
- home sellers
- buyers realtors
- sellers realtors
- attorneys from both side
- mortgage lender
All the above are all on the same team and if cooperate with one another, the closing process will go smooth and any obstacles during the process can be overcome.
Home Buyer’s Mortgage Loan Approval
Although the home buyer has presented the seller with a written pre-approval by a licensed mortgage loan originator, the pre-approval is not a guarantee. Pre-Approvals are issued differently by every lender. Some pre-approvals have more weight than others. All pre-approvals issued by Gustan Cho Associates Mortgage Group are pre-approvals that have been fully underwritten and signed off by our mortgage underwriters. Loan Officers are allowed to issue pre-qualification but not pre-approvals. All pre-approvals should not be issued by a loan officer. All pre-approvals should be fully underwritten and issued by mortgage underwriters. These are loan commitments and the only condition missing is the property. Anything can go wrong during the mortgage approval process. A solid pre-approved borrower can get a flat out mortgage loan denial if the pre-approval was originally issued by a mortgage underwriter
Borrowers can do the following to cause a potential loan denial during the mortgage process:
- missed a monthly debt payment
- bounced a bank check
- buy a new car
- change or quit their job during the mortgage approval process
- The most intelligent borrowers do something out of the ordinary unintentionally that can affect a mortgage loan approval. Just because a borrower did something stupid during the mortgage approval process does not mean that the deal is completely dead. Everything can be worked out I had a recent case scenario where one of my clients just quit her job after the mortgage lender did a verification of employment
She thought that once that the verification of employment was done, she was off the hook and can quit her job and move on to the new job. Lenders do a final verbal verification of employment prior to issuing a clear to close
Home Buyer’s Mortgage Process
In this case scenario when the mortgage underwriter called the employer to do a verbal verification of employment, the employer told the mortgage underwriter that she quit a week ago. In this situation, we got lucky because my borrower got herself a new full-time job. We needed to wait 30 days so she can provide us 30 days of paycheck stubs. The mortgage underwriter had to do both a written verification of employment as well as a verbal verification of employment prior to issuing a clear to close. This mishap delayed the mortgage closing for 30 plus days due to the buyer quitting her job prior to funding the mortgage. The delay affected the home sellers. They had to cancel their movers and the closing on their home purchase. Fortunately, this mishap was not a deal killer. Just a 30-day closing delay
Low Home Appraisal Issues
Home sellers need to be concerned that the home appraisal comes in at the purchase price value.. In the event of a low appraisal, sellers need to be prepared to lower their sales price. A buyer’s lender will only base the buyer’s mortgage on the appraised value and not the purchase price. If the appraised value comes in at the purchase price amount, there are no issues. If the appraised value comes in lower than the contract purchase price, the lender will base the loan to value on the appraised value
For example, here is a case scenario:
- if the home buyer is approved for an FHA Loan
- they have a signed purchase contract of $120,000
- the appraisal came in at $100,000
- maximum loan to value on an FHA loan is 96.5%
- the home buyer will get is $96,500 loan amount and the buyer needs to come up with the difference
- The buyer needs to come out of pocket the extra $20,000 if the home seller demands the full $120,000.
Most FHA home buyers barely have the 3.5% down payment. In cases like these, sellers need to lower the contract sales price to the appraised value or the deal will not happen. In cases of low appraisals, there will be a delay in closing due to the time it involves either doing an appraisal rebuttal, renegotiation or amending the sales contract.
Title Issues Can Also Be Cause Of Delays For Home Sellers
Sellers need to make sure that there are no liens on their titles. Lenders require title insurance to protect their assets. The home is the lender’s asset. Any cloud or defects on the title will cause a closing delay until the title is clear of any liens.
Home Inspection Issues
Most home buyers will get a home inspection done. If the home inspector comes up with any defects on the home, the buyer may either cancel the purchase offer or may require the seller to correct the issue or want a credit on the repairs that are needed. If the repairs involve safety and security issues, the home may have a hard time passing appraisal inspection as well. These factors can also be causes for delays in mortgage loan closings.
Do Not Schedule Movers And Closing Until Getting Clear To Close From Buyer’s Lender
Both buyers and sellers normally get really antsy towards the latter part of the mortgage approval process. Many schedule movers and a closing date prior to a clear to close. Nothing is wrong to schedule a tentative closing date and a tentative date for movers. However, do not do a firm commitment because last-minute hiccups can often happen. If currently renting and the landlord has new tenants moving in on a tentative closing date, that can create a major problem. Make sure to always have plan B in the event of a closing delay.