So You’re Buying A Home
Which means you went out and hired a realtor. That realtor drove you all over town looking at homes that were too small, or too old, or needed too much work. Just as you were going to abandon all hope of home ownership, you found it! The perfect place call home! A home with the perfect kitchen, the perfect yard, the perfect amount of sunlight. Everything is simply perfect.
Buying a home is an exciting time in anyone’s life. Not only will the property you decide on be one of the largest purchases you ever make, it will also stand as a symbol of your financial independence! Those four walls are a sign to the world that you have went out and accomplished the American dream! Your dwelling signifies taking the process of home buying by the horns and showing it who’s boss
You Are Already Ahead
You have already completed a huge step towards closing by choosing a property to make an offer on! The process of simply choosing a home takes upwards of 30-60 days on average! This search can take even longer in high-demand areas where the competition is stiff. So be proud of yourself! Pat yourself on the back for your accomplishments!
The minute most home seekers find their dream property they cannot wait to complete the buying experience and move into their new home! However; many new homeowners are not aware of how the closing experience works and become discouraged with delays! Although the road to closing day can be a long one, there are many preparations you can take to make your experience a smooth one. Read on to learn what road bumps can lie ahead as well as how to avoid them. With a little planning, you can make your home buying process a fun and easy experience!
The First Step Is Essential
Hopefully you have already completed the first step of your closing without even realizing it yet. Getting pre-approved for a mortgage with the lender of your choice before finding your dream home is the best first step for buying a new home. This preparation can really speed up the process of getting your mortgage loan in place for closing!
Work on getting pre-approved as soon as you start looking at properties. The difference in getting pre-approved is you will have clearance from your lender on all aspects of your mortgage except for the final step, the property. When you are pre-approved, your mortgage company as a major jump start on completing your loan paperwork! This means cutting some serious time off of your closing! Plus, if you choose to make an offer the seller can feel confident that you will have the funds to back your offer. Pre-approvals have won many people’s homes when monetary offers are the same!
Provide Supporting Paperwork and Documentation
After your preliminary approval is issued, your mortgage lender will ask you to provide quite a bit of paperwork to them rather quickly. This paperwork will serve as proof that the information you submitted on your application is true. Usually this includes pay stubs, W-2 statements, tax forms, and bank statements.
After reviewing your submission, your lender may ask for additional supporting information again. These supporting documents will help them find reasoning for exceptions to your finances. These can be receipts for large purchases or proofs of inheritance. To save as much time as you can on your closing it is important to supply any requested documents as quickly as possible. The faster the buyer complies, the faster a lender can process their loan.
Making Your Offer On A Home
After getting pre-approval and finding their dream house, the buyer will make an offer to the seller to buy the home. This offer will include the price they are willing to pay, as well as any contingencies the buyer may have. To prevent your own offer from stalling, be sure to add a time frame in which the seller must accept your offer before it becomes void. Many realtors recommend making your offer expire at 5 pm, three days after it was made.
Most offers take an average of 1-5 days to be negotiated to acceptance. If your offer was enough to catch the seller’s eye you will begin your final inning! All that stands between you and your dream home is the closing process!
Know That Things Will Begin To Slow Down
In the event of a cash buyer, a closing can be done as quickly as both parties settle up. However; if the buyer is in need of a mortgage, it is their lender who will determine the length of time required to process the loan and close. Regardless if the buyer and seller agree to a closing date, if the lender cannot gather all of their information and process the loan in that time frame, the closing will not happen. Your new home will close only once the lender is fully prepare.
Unfortunately, regardless of all you will read below, not all lenders value your time equally. This means your lender plays an important role when buying a home! Make sure you do your research when you are getting pre-approved.
Your Mortgage Type Can Affect Your Closing
Not all mortgages are created equal. Loans to purchase home can be found through government agencies, banks, and private companies. Each type of loan has its own requirements, documentation, and steps needed for closure. Due to the variance in process, loan closure periods need to be adjusted based on loan type.
According to Fannie Mae, a leader in the conventional mortgage industry, the average closing time for purchasing a home is 46 days. Any loan not given by or insured by the U.S. government is a conventional mortgage. These lenders simple run your credit report to determine your rates, terms, and down payments.
Federal Housing Administration mortgages, better known as FHA loans, may take a bit longer to close. FHA has worked hard to streamline the process for their applicants. FHA does not offer the actual loans. Instead, they only insure the loan’s amount that your lender approves. Fannie Mae averages the closing on these loans at 45-46 days
Like FHA, =Veterans Administration does not make direct mortgages, but insures the loans from others. Also similar to FHA loans, a VA loans average 45-46 days to close. This loan requires a Certificate of Eligibility to verify the buyer’s service to the military and their discharge from said service.
Refinancing Your Current Home
Many homeowners choose to refinance their homes at some point. Whether you are making a large purchase, refinancing, or going through a financial hardship, many find relief with restarting their mortgages from scratch. If you already have a mortgage on the home, a refinance will stretch your closing a bit more than with original loans by averaging 49 days to close.
The Longest Step In The Closing Process
Shortly after your offer is accepted it will enter the appraisal process. Many credit the longer closing times of today to the lack of appraisers in today’s market. A large number of professional appraisers found new fields of work to survive the 2000’s real estate crash. Unfortunately, today’s home buyers are still being affected by the shock waves of that recession.
Don’t think the lack of appraisers means that others aren’t buying homes. Demand for these professionals is at an all time high! To give yourself fair expectations, speak to your realtor or lender about appraisal turnaround times for your area. The good news is, once you get your hands on an appraisal your are well on your way to closing!
How Long After The Appraisal To Close?
Typically, your closing will not take longer than 2 weeks to complete once your appraisal is in order. Most mortgage companies work on finalizing approvals at the same time that the buyer is awaiting their appraisal. Which means your green light to buy should be ready fairly quickly!
Remember though, nothing can be promised in the world of closing times. Ellie Mae, mortgage software provider, processes more than 3.7 million mortgage applications each month nationwide. This means there are many chances for to make hiccups while processing so many mortgages. These blips often times can add extra days before you can move into your new home.
Delays That Can Alter Your Closing
Not all road bumps are created equal in the world of real estate. Sometimes a delay in your closing is fully your fault due to lack of preparation. At other times, there is nothing a buyer could do to prevent their delay. Below are some of the most common culprits for extending home closures.
The real estate world is a world of booming chaos at the moment! Nationwide, mortgage companies have been releasing staff in preparation of rising rates. However; at the same time, the loom of rising rates has also led to a significant increase in applicants wanting to buy a home!
This desire to own if further fueled by rising rent rates. Most states in the US have seen rises in the cost of rentals in recent years. Supply and demand as allowed property owners to demand higher rents than ever before. Many renters have had enough. They are choosing to invest their money into property of their own.
TILA-RESPA Disclosure Laws
These buyer protecting laws went into effect roughly two years ago in October 2015. Since that time, there has been a government-mandated three days added to all loans to be processed. These complicated laws boil down to a simple new process to assist the purchaser in a closing. Now, mortgage lenders must send pertinent paperwork to all applicants at least three days before closing.
Although these laws add time to your closing, they allow you the time to review all documents thoroughly. You should be well-acquainted and comfortable with all the forms in your closing. If any of the closing documents require changes, the buyer is granted three more days after adjusted papers have been provided.
Your Rate Lock Date
When you finance a home, your interest rate is based on the time it took to close on your loan. Meaning, the less time it takes you to close after you had your interest rate locked in, the lower your mortgage rate will be. For every fifteen days that you take to close on your loan there will be an increase of 0.125% added to your quoted mortgage rate. Many buyers affect the status of their loans with these increases. Any change in finances can be dubious to a closing loan.
With this in mind, many mortgage companies require their buyers to state how long they would like their closing to take. The lender can then assign rate locks based off your needs. They have the option to cover you for up to sixty days with extended mortgage rate locks. Most buyers should stick with the shortest rate lock period they can. Your mortgage lender is available to help you determine a reasonable rate lock period.
Making Changes To Your Application
After you receive a pre-approval or make an offer, it is your duty as a buyer to not change anything that could affect your mortgage application from being processed. When buying a home you cannot quit a job, buy a car, apply for a new credit card, or even put your Christmas shopping on layaway! Most importantly, make sure you do not miss a payment to a creditor in this time period!
Making any of the honest errors above can cause your application to be thrown out or revoked. This means starting from scratch and adding days to your closing!
Closing Day Has Arrived
The big day has finally arrived! It is closing day! This is the day where the buyer and seller finalize the sell of the property. This is also when the buyer will take over ownership of the home and pick up their new keys. Many parties involved in a closing choose to take the day off work for a closing. The excitement of the process can be quite draining. Plus you will be itching to get to your new home after!
To ensure your closing day runs smoothly, make sure you have everything you will need prepared in advance. You will need a check, money order, or cashier’s check made payable to the title company, or lender for the down payment and other closing costs you’re paying up-front. You will also want to make sure you have all of the below:
- All Purchase Agreement Documents
- Home Inspection Forms or Waivers
- Contingency Forms or Seller Obligation Forms
- All Inspection Forms
- Buyer’s Final Walk-Through
- Appraisal Forms
- Loan Approval from Your Lender
- Proof of Homeowner’s Insurance
- Escrow Forms for the Buyer and Seller
- Deeds and Titles
Welcome Home, Homeowner
Remember to enjoy your home buying experience. In the end you will not remember waiting a few extra days before you could close. Instead you will just think of all the happy memories this life changing purchase had brought you.
If your closing is still causing you some anxiety, have an honest conversation with your loan officer. Ask them to give you a realistic answer for how long they expect your loan to close. Even if the answer is pessimistic, you will know what you are facing. At the end of your journey is your new home!