How to Survive the Mad Dash to Closing
The closing table is the final step before a buyer takes possession of a home. Here's how to stay calm, cool and collected
If you ask Bruce Hahn for tips on how to survive the happy chaos of closing a home purchase, one thing the president of the American Homeowners Foundation in Arlington, Va., will jokingly advise is to "take Valium, lots of Valium."
The anxiety many buyers feel at closing time is no joke, with mountains of documents to prepare and sign, moving dates to arrange, unexpected costs and other complications.
"There are dozens of pitfalls in closing the deal," says Robert Irwin, author "Tips and Traps When Buying A Home" (McGraw-Hill, 2008).
In general, closing a home purchase comes after the home seller has accepted the buyer's offer. Depending on what state you live in, the deal might go into escrow, where a title company holds the deed and funds, checks for liens, secures necessary documents and ensures the orderly transfer of the property. Lawyers and settlement agents also might be required to be present at closing. While each state's requirements may be different, many of the pitfalls are the same. Here, experts explain a few of the most common problems in trying to close in today's housing market, with suggestions for making the deal go smoothly.
ACQUIRE ACCURATE APPRAISALS
One of the biggest closing problems today is lowball appraisals, Irwin says. Appraisers unfamiliar with local neighborhoods may too heavily rely on data from foreclosures to make their assessment.
"As a result, the appraisal on which the loan is based may be significantly lower than the selling price [and] the property may not qualify for the needed financing," Irwin says.
SECURE YOUR FINANCING
"Stories are rampant of buyers who thought they had lined up financing only to find the lender wouldn't fund when escrow was ready to close," Irwin says. "It all seems to depend on the lender and its mood at the time of closing." In too many escrows, Irwin says the lender will suddenly claim the buyer is no longer qualified for the financing.
"It could be that the buyers' FICO score is suddenly too low, the down payment too little or their income too low - even though their scores down payment,and income have not changed since the application was made."
Potential remedies include paying a higher interest rate, although Irwin says "it could mean the buyer no longer qualifies because of a higher monthly payment."
BE FLEXIBLE
Get comfortable with the phone ringing with a call from your lawyer or escrow company asking for more documents ... And more ... And more.
"Whatever they need, get. Don't take it personally when they say, 'I want four years of tax returns, not two,'" says Ron Phipps, 2010 president-elect of the National Association of Realtors. "Lenders are being extremely careful, coming up with lots of requirements, documentation on where the funds are coming from ... And if there's a title issue or a problem with financing, it won't get fixed in a day."
Impatience can actually cost a buyer, adds Issamar Ginzberg, a licensed agent based in Brooklyn, N.Y. "This can create a situation where you get taken for a ride," he says. "When the other party sees you being too impatient to close, it may mean to them that they have an opportunity to get more out of you."
READ YOUR CONTRACT
"I know that most people don't read it, but you're putting your life savings on the line, and you should understand the terms," says Sam DeBord, a licensed real estate broker and Realtor with SeattleHome.com. "If nothing else, sit down with your lender and your agent and go over your documents to make sure you understand the timelines and figures. When you sit down at the closing table, it's too late to realize your mortgage is a 15-year loan instead of a 30 year loan."
CREDIT CRUNCH?
In November, Congress extended this year's deadline for the first-time homebuyer tax credit - you must enter into a binding contract to buy the home before May 1, 2010, and close before July 1, 2010.
Some wonder if the new deadline will lead to a "closing crunch" that prevents some homebuyers from getting in on the deal, although experts are doubtful.
"With the extension of the credit, November's deadline didn't create the mad dash that we expected," DeBord says. "The July 2010 deadline shouldn't create much of a crunch for two reasons: First, there is now a perception that the government may continue extending credits. Secondly, most buyers have to be under contract at least two months before that July deadline. The vast majority of those transactions will be closed long before the deadline."