Often times, sellers and buyers think that once a home is under contract, the grunt work is over, but typically that is far from true. The buying/selling journey can be a long process and must meet specific agreed upon requirements. If not, the closing may experience delays.
According to a study by the Washington Post, 32% of closings get delayed. Of the third of postponed closings, financing issues triggered 46 percent, appraisal-related problems caused 21 percent of the delays, and home-inspection issues in 14 percent. 90 percent of the time, the buyer is responsible for the delay.
HOME FINANCING SETBACKS
Believe it or not, your credit score can fluctuate enough between loan approval and closing, which could result in the buyer being ineligible for the mortgage. The best way to avoid this is to incur no additional credit during this period, meaning no new car purchases, or any new credit activity at all.
Debt-to-income ratios also can change when an underwriter discovers that a buyer failed to disclose payment obligations such as child support or student loans. To avoid this, disclose absolutely everything to your loan offer. Also make sure you are not doing anything that could affect your qualifying income, such as a sudden job change.
HOME INSPECTION ISSUES
Most real estate transactions have an inspection contingency to ensure the home being purchased doesn’t have any major defects that could cost tons of money in the future.
After a home inspection is completed, the buyer has the opportunity to request repairs be completed or some type of seller concession, in lieu of the repairs. If a seller agrees to make repairs, it’s important that these repairs are done once a buyer receives their mortgage commitment.
If a closing is delayed due to inspections, it’s typically because a seller doesn’t make the agreed upon repairs. You should expect your real estate agent to follow up on the repairs to make sure they are completed well before the closing date so there are no delays.
One way to make sure your home will go through the inspection without a problem is to get a pre-listing inspection by a reputable professional before you list the house on the market. This allows the seller to fix anything important in advance.
UNDER APPRAISED HOME
Problems with a bank appraisal may be a reason your closing gets delayed. The issue normally comes down to the house under appraising for the agreed upon contract price. If the buyer and seller cannot come to new terms, or if the required repairs aren’t made, the deal could fall apart.
As long as your real estate agent is handling the transaction carefully and following up to make sure the appraisal has been completed, the house did in fact appraise, and there were no required repairs, then your closing will clear this contingency.
THE FINAL WALKTHROUGH
The last step before a home closes is the final walk through, which is especially important for the buyer. There are many things that a buyer should be on the look out for at the final walk through.
- Ensure agreed upon repairs are included
- Air conditioning is functioning
- Furnace is functioning
- Utilities are functioning
- Included appliances are functioning
- Toilets are functioning
If any one of these things are not acceptable, the closing will most likely delayed! Since the final walk through typically happens the day prior to the closing or sometimes even on the closing day, it can be extremely frustrating for a buyer. To avoid this, stay on top of the sellers to make sure their keeping their end of the deal, and disclosing if anything could delay the closing at the final walkthrough.
UNREALISTIC CONTRACT DATES
Whether you’re a buyer or seller, it’s imperative that you have a top realtor representing your interests. One of the most common reasons why a real estate closing is delayed is because of unrealistic contract dates that were agreed upon in the purchase offer. An experienced real estate agent knows how to appropriately structure the dates in a purchase offer to mitigate any prolong closings.
The majority of the time, It takes around 45-60 days for contract to close. This depends on the type of financing a buyer, if the property is bank owned, if the home is paid in cash, if there are a number of contingencies in the purchase offer, and other variables. It’s important to have the expectation that your home will take 1-2 months for closing to occur.
A top real estate professional should know whether the contract dates are realistic or not. For example, if you have a top producing listing agent and you receive a purchase offer with unrealistic contract dates, they will know what questions to ask the buyers agent and also what to advise you to counter in the purchase offer.
REACHING THE FINISH LINE
More often than not the deal will close. There just may need to be a few extra days to reach the finish line. The best option is to grant the buyer a contract extension. An extension to the contract establishes a new closing date that can be met in the future.
The new TRID law that went into affect a little over a year ago has pro-longed the closing timeline, but as long as the guidelines are followed, you can avoid delays. Under TRID, a new settlement statement called a Closing Disclosure must be issued to the borrower at least 3 days prior to closing. If that does not occur, the closing will be delayed for up to 7 days.
HOW DO DOWN PAYMENTS WORK? FIND OUT HOW MUCH MONEY YOU NEED TO PUT DOWN FOR A HOME
Whether you’re a first time homebuyer or exploring different financing options for your next home, you may have heard a lot of conflicting information about the size of a down payment when buying a house.
Most people looking to buy a home choose to finance their purchase through by getting a mortgage, rather than paying cash for a home. Generally, lenders like to see good income, low debt, strong credit, and of course, enough money for a down payment. A down payment is defined by the amount of cash that is your initial equity in the home.
If you’re thinking about buying a home, you have probably started saving up in anticipation for the down payment. But how much do you really need for a down payment? Generally, mortgage lenders like to see a 20% down payment, but do you really need that much?
A STANDARD 20% DOWN PAYMENT FOR A HOME
Ideally, putting 20 percent down is what you want to strive for as a homebuyer. If you are able to put this much down, you have a better chance of getting approved for a loan, most lenders won’t require you to take out a private mortgage insurance (PMI), and you’re more likely to be offered lower interest rates on your mortgage.
These advantages stem from your substantial stake in the home, meaning there’s less probability to default on your mortgage. There are all sorts of other benefits from putting 20 percent down such as:
- Lower upfront fees
- Lower ongoing fees
- More equity in your home right off the bat
- A lower monthly payment
The down payment is not the only upfront money you have to deal with. There are other monetary factors that come into play to consider as well. Explore below for some lower down payment options.
PROGRAMS THAT HELP YOU BUY A HOME WITH LESS THAN A 20% DOWN PAYMENT
Saving up 20 percent for a down payment can be a lot to ask for, even in the current economic upswing. If you’re looking to buy a $100,000 dollar house, that’s $20,000 you will need in savings. With stagnant wages, as well as rising rent and home prices achieving this can be extremely difficult. First time homebuyers may have more of a struggle affording a home because they’re younger, earn less, and have excessive amounts of student loan debt.
One commonly used loan programs is the option FHA option, which is one of the most popular financing options in the U.S.. It insures mortgages for homebuyers with lower credit scores, higher debt-to-income ratios, or less money for a down payment. FHA loans are insured by Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD), a federal government agency.
The minimum down payment for an FHA loan is just 3.5 percent of the home’s purchase price. That means the down payment for, say, a $350,000 home would be just $12,250 with this type of loan. Your credit score should be 580 or higher, and your debt-to-income ratio can creep up to 56% or so. If your numbers look a little different, for example, your credit score is below 580, it’s still worth looking into the possibility of getting an FHA-backed loan.
VA AND USDA LOANS
VA loans, guaranteed by the U.S. Department of Veterans Affairs (VA), and USDA loans, backed by the U.S. Department of Agriculture, don’t require a down payment, which means buyers can purchase a home with very little cash upfront. The VA loan is open to most active-duty military personnel and U.S. military veterans, among other groups. The USDA loan is available in rural and outlying suburban areas.
A conventional mortgage loan is one that’s not backed by the government. This makes it distinct from FHA loans, VA loans, and other forms of government-insured mortgages. With a down payment of at least 5 percent, ranging to 20 percent, you can often qualify for a conventional mortgage loan, as long as you have adequate income, a reasonable debt-to-income ratio, and a credit score that exceeds the lender’s required minimum, typically between 660 and 700.
With this loan, you’ll still be offered a decent interest rate for this type of mortgage, but you’ll just have to pay a private mortgage insurance (PMI). This insurance protects the lender in case of a loan default. A PMI typically costs between 0.5% and 1.0% of the borrowed amount.
FANNIE MAE HOMEREADY LOANS
Another new option recently introduced by Fannie Mae is the HomeReady program and allows a down payment of just 3% and says the income of non-borrowing household members, as well as rental income, can be used to determine the debt-to-income ratio. This option is available for home purchases in specific low-income census tracts and other designated areas.
The bottom line is most people actually don’t choose to make a big down payment to buy a home because there are other options available. Some people can pay as little as 5% or some don’t need any down payment at all.
The only way to find out for sure is to talk to a lender. Most people don’t think they could qualify to obtain a loan, but you would be surprised with your options.
Do you have an eye on your next home?
This mortgage calculator can be used to figure out monthly payments of a home mortgage loan, based on the home’s sale price, the term of the loan desired, buyer’s down payment percentage, and the loan’s interest rate. This calculator factors in PMI (Private Mortgage Insurance) for loans where less than 20% is put as a down payment. Also taken into consideration are the town property taxes, and their effect on the total monthly mortgage payment.
Navigating the world of real estate, you’re going to end up coming across all kinds of real estate terminology that you may not be familiar with. Whether it’s your first time buying, or just don’t quite understand something, there is a lot of confusing terms used between real estate professionals.
Knowing what your real estate agent is talking about when they use common real estate terms will make the process smoother, and will also ensure communication is much easier.
Here are 22 basic real estate terms that will allow you to be better informed and involved in any real estate transaction.
- Acceptance: The acceptance is the agreement to the terms of an offer, which then creates a contract. As soon as the seller signs on the dotted line on the purchase agreement, you’re in a binding contract for the sale of the house. Once the contract is signed, neither parties can back out without facing consequences. In the buyer’s case, they will lose the earnest money deposit and in the seller’s case, it could end up in a potential lawsuit.
- Appraisal: The appraisal is the estimated property value, as determined by a qualified appraiser. If a buyer is obtaining a mortgage, lenders require an appraisal of a property before approving the loan. Cash deals don’t require appraisals.
- Buyer’s Agent and Listing Agent: Typically, there are two types of real estate agents that are involved in the home buying process. If you are buying a home, then you will want to be represented by a buyer’s specialist, while the listing agent will represent the seller of the home.
- Closing: The closing date is the scheduled day on which the sale of the property is officially finalized and transferred thereafter. In order to meet the closing date, the buyer must sign all the mortgage documents and pay all closing costs and the seller completes the transaction with the buyer.
- Closing Costs: Closing costs are fees paid at the home closing, which is when the title of a residence is transferred from the seller to the buyer. These costs typically include real estate commissions, escrow fees, document recording fees, lawyer fees, title insurance fees, survey fees, and taxes. These costs can also include the expenses the home has incurred by buyers and sellers during any negotiations.
- Comparative Market Analysis: The best method available to home sellers to learn their home’s current value so they can select the best sale price is a CMA, or Comparative Market Analysis. CMA is the term real estate agents use when they conduct an in-depth analysis of a home’s worth in today’s market.
- Contingencies: A contingency is the condition that must be met before the deal can be finalized between the buyer and the seller becomes legally binding.. If the home inspection reveals major problems, then the contingency allows the buyer to walk away from the contract without losing money. A common contingency is the home inspection. Other contingencies can include appraisal contingencies or financing contingency.
- Debt-To-Income (DTI) Ratio: The ratio of monthly debt payments to monthly gross income. Lenders use a housing DTI ratio (house payment divided by monthly income) and a total DTI ratio (total debt payments including the house payment divided by monthly income) to determine whether a buyer qualifies for a mortgage.
- Down Payment: The down payment is the amount of out of pocket money you pay toward a home before your lender provides you with a loan to cover the rest of the purchase amount. Your down payment can vary depending on the type of mortgage you take out. It can be anywhere from 3 percent to 20 percent of the total cost.
- Earnest Money Deposit: The earnest money deposit is the money you provide along with your offer on a house to show good faith. This amount usually accounts for one to two percent of the home’s purchase price. If the sale goes through, the earnest money deposit goes toward the down payment. If the seller rejects the offer, the money goes back to the buyer.
- Escrow: The escrow is a deposit of funds or documents, such as the earnest money deposit, that are held by an escrow agent, or other third party, until the sale goes through. The third party holds the property, cash, and the property title until all conditions of the property agreement have been met.
- Equity: Your home’s equity is the difference between the home’s fair market value, and the unpaid balance of the mortgage. Equity increases over the life of the loan. For example, if your home is worth $100,000, and you owe $50,000 still, the other $50,000 is your equity.
- HUD-1 statement:A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points and initial escrow amounts. A separate number within a standardized numbering system represents each item on the statement. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer’s net payment at closing.
- Home Warranty – Similar to any warranty, sellers and buyers can pay a fee to protect the home against future issues depending on how much their package covers, like plumbing, heating, or appliances.
- Inspection: A home inspection is scheduled after you have made an offer on a home. Some municipalities require an inspection, whereas some do not. The inspector goes through every part of the home to check on the foundation, walls, heating, electricity, plumbing, and appliances to see if they are up to code or need repairs. If the inspector finds something wrong in the home during the inspection, the inspection will fail.
- Lien: A lien is when a legal claim is put on a property in order to receive payment for debt. The holder of the lien can sell the property to recover the money owed.
- Listings: Real estate agents will often refer to homes for sale on the market as listings. These listings include basic information about the home for sale, such as the price, number of bedrooms and square footage.
- Private Mortgage Insurance: PMI allows buyers to put less than a 20 percent down payment on a home. A PMI is an insurance premium paid by the buyer to the lender to protect the lender if you are unable to pay your mortgage. Once you have 20% equity in the home, this insurance is discontinued.
- Mortgage Pre-Approval Letter: Buyers can get approved for a home loan before they find a property they want to invest in. This lets buyers know how much they can borrow. They can then use the mortgage pre-approval letter to show sellers that they have the proper financing in place to purchase the home. This information is used as an estimate and doesn’t obligate the lender to work with the homebuyer. Most realtors require a pre-approval letter before showing homes to buyers.
- Multiple Listing Service: Otherwise known as the MLS, the Multiple Listing Service is a large database that real estate agents have access to that provides detailed information about most of the properties that are currently on the market, under contract, or have sold.
- Realtor®: Don’t make the mistake of thinking a Realtor is the same thing as a real estate agent. Not all real estate agents are Realtors; only those that are members of the National Association of Realtors (NAR) can call themselves Realtors.
- Title and Title Insurance: Title is the legal term that identifies a piece of property that the owner is in lawful possession of that property. The title insurance protects real estate owners and lenders against any property loss or damage they might experience due to liens, encumbrances, or defects.